When you're starting out as a new business, there are a lot of things that you must do to learn the ropes of small business accounting. Here are some of the common mistakes that new business owners can make in their finances.
Mixing Up Personal and Business
As soon as you become a business owner, it's crucial to learn how to manage business accounts since it can be a bit different from managing your own personal transactions. The biggest no-no that you can make is keeping the same account for both business and personal affairs. This can cause a huge headache when tax time rolls around, since you'll have to be careful about noting which expenses belong to your business and which are personal. It's best to set up a separate account and to have strict rules around record keeping for your business accounts.
Losing Sight of Cash Flow
While you're out chasing a steady profit, it can be easy to lose sight of other financial indicators, like cash flow. You wouldn't want to run into an issue where you have the money to pay off your subcontractors, just not "right now." Getting the right cash flow strategy depends on how you set up your ins and outs each month in your accounts. For instance, make sure that you're consistently paying your bills at a time when most of your clients have finished processing their invoices and sent you a check. An accountant can help you by delivering management reports that show how your finances ebb and flow through the course of a standard month.
Giving One Person Too Much Power
Another thing that you can do wrong, especially when you have a small staff, is give a single employee too much access and control over your finances. If you have only one financial employee, for instance, they may have their hands on your account information and your payroll, as well as your taxes. While you hope to trust each employee you hire, the bottom line is that they are only human; leaving all of your financial transactions to one person who may make mistakes can cost a new business dearly.
At the least, make sure that you're reviewing transactions on a regular basis and that you approve any major transactions ahead of time. Outsourcing your accounting management to a small business accounting firm is even better, since you'll have a third party check to make sure that everything is done correctly. Contact a company like Homer Wilson & Co Ltd to learn more.