Erasing mistake – stock photo by Altayb CC BY-SA 3.0 gettyimages
With tax season wrapped up for 2018, it’s already time to start thinking about taxes for 2019! New small businesses are being started every year, which means plenty of brand new business owners that might not know everything they should about accounting! Accounting mistakes can be quite costly, but are easily avoided if you know what to do! Here are some critical accounting mistakes that you’ll want to avoid this tax year if you’re a small business!
Accounting is Constantly Evolving
One thing that will likely never change about accounting and the nature of tax is the constantly evolving and changing nature of the profession. Tax laws are revised and changed every year, which means that the information you learned a few years ago might not be relevant today!
Because tax laws serve as the rules of operation for accounting, it can be very difficult to know if you’re staying in compliance year after year! Because the rules of the profession keep changing, you’ll need to be diligent about staying on top of all these changes to make sure you’re actually staying compliant.
Not only do tax laws change, but the way things are reported and the requirements for documenting this seem to also experience change. One of the driving forces behind changes in the accounting field is technology.
Technology has made several advances and convenient shifts for accounting. No longer do accountants need to manually record transactions and physically compile financial reports. With specialized accounting software, many functions are streamlined so you only need to include relevant data. Don’t forget that accounting software is also subject to updates, meaning you might need to learn how to use the updated software.
Mistakes Can Be Disastrous
With so many changing rules and procedures to keep track of, it is very easy to make a mistake. Because things are constantly changing, you need to know whether something is correct before you do it. If you aren’t absolutely certain, then you’ll likely make choices that seem intuitive, but are actually the wrong way of handling the situation.
When it comes to accounting, mistakes are far more impactful than they might be in other departments. The figures and financial reports a business releases will be inspected by the IRS, but also the public. This means that mistakes will be noticed when they happen.
Not only will they be noticed, but they’ll also paint a picture that doesn’t accurately represent your business. If you accidentally claim expenses you aren’t eligible for, it will falsely inflate your net profit. This is particularly impactful when it comes to shareholders. Profit and loss directly impact shareholders because their investment is contingent on the performance of your business.
While you might not be a publicly traded company as a small business, the ramifications of your mistakes are still financially strapping. Fortunately, these blunders are quite avoidable if you are aware of what you actually need to look out for! Most mistakes actually happen due to unintentional ignorance, but this is certainly fixable.
The Worst Offenders
There is quite a long list of mistakes that a small business can make. If you’re taking the time to analyze what you might be doing wrong, then you’re already in a great spot because it shows that you care to avoid errors. This also means that you’re probably doing better than most small business when it comes to mistake avoidance.
The main problem with avoiding mistakes is that you don’t know you’re making them the first time around! This is why you need to take time to research best accounting practices to ensure you’re doing things right!
Here are some accounting mistakes your small business won’t want to make for the 2019 tax season:
- Lack of Reconciliation – Depending upon the volume of your small business, you might have a fairly large number of transactions. This might also mean you have plenty of open accounts to keep track of. Regardless of how much there is, you need to keep track of every dollar that goes in and out of your business. You’ll want to verify that your recorded amounts match what actually happened, otherwise your financial reports will be incorrect.
- Confusing Terms – In a small business, it can be difficult to differentiate between revenue, profit, cash flow, and receivables. Your revenue is the total amount of income generated by the business, while your profit is what remains after deducting all relevant expenses. Your receivables are liquid revenue, meaning that they can be used to offset expenses. Cash flow relates to the flow of money relating to all aspects of your business (not only sales).
- Skipping Records – Another trap small business owners run into is failing to record certain transactions. When a transaction is fairly minor, it can be easy to view it as unimportant. While it might feel unimportant, the transactional exchange will show up in your records in some form. If you failed to record a few transactions, you’ll encounter issues when you try and reconcile your accounts.
- Not Delegating – Another problem with small businesses and accounting is the lack of delegation. Accounting departments are designed with balances and controls so that fraud and mistakes are avoided. When only one person handles the entire accounting process, there isn’t another set of eyes to double check the work and verify mistakes aren’t being made.
Complete Compliance Assurance
With the constantly evolving nature of accounting, it will always be a challenge for small businesses to adequately handle accounting functions. While something might be correct this year, who’s to say that it will still be acceptable 10 years from now?
The most important thing to keep in mind with small business accounting is that you need to stay on top of research! You need to be informed, otherwise you’ll make mistakes that can slash the hard-earned profits of your small business.
Even though compliance is a tricky thing to ensure, you can feel reassured if you use the professional accounting services offered by the Felde CPA Group! With several years of successful experience with a wide variety of clients, the Felde group has the knowledge and expertise to help your small business stay in complete compliance! Get in touch with the Felde CPA Group today to see how we can save your small business money next tax season!