Top Small Business Financial Accounting Mistakes

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					Top Small Business Financial Accounting Mistakes
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It is common among cash-strapped small businesses for the owners and their employees
take on many responsibilities simultaneously. The job of financial accounting and general
bookkeeping thus often goes to someone within the business who has not been formally
trained for the task. Though this may be an effective way to reduce expenses, it could
lead to some costly mistakes down the road.

Even if your budget is tight, you should make an effort to avoid these common pitfalls in
small business accounting:

1. Hiring someone who is unqualified for the job. These days, cost-cutting has become
a top priority among small business owners trying to keep their ventures going. However,
the experience, know-how, and counsel of a qualified professional, such as a bookkeeper,
tax preparer, or accountant, is always needed. Cost-cutting loses its value when necessary
“corners” are cut.

2. Not establishing formal accounting policies and procedures. Creating clear
accounting policies and procedures helps to ensure consistency and accuracy in the
processing of transactions. This is particularly important when a business has several
employees who may additionally share jobs and responsibilities. Common areas to
consider include: the management and usage of petty cash, a system for employees to be
reimbursed for business expenses, how to set up the filing system for clients, projects, or
complex transactions, and finally how to keep the lines of communication open between
management, employees, and the individual(s) who maintain the financial recording.

3. Not making use of available programs and tools. These days, small businesses have
access to a wealth of software programs and services that are specifically designed to
help small businesses with their accounting, payroll, and tax obligations. Some of these
options, such as Quickbooks, come at a cost; however, there are several free or low-cost
open source programs available that can do a pretty decent job. There are even some
mobile phone apps that can greatly enhance the way the transactions are recorded.

4. Leaving out the fundamentals of bookkeeping. Due to lack of know-how,
experience or time, many small business owners make the mistake of leaving out some
fundamental bookkeeping steps, such as reconciling the books and bank statements every
month, saving receipts (even for purchases less than $75), and properly tracking
reimbursable expenses.
5. Ignorance of current accounting rules and legislation. Since the person (or persons)
who are recording the financial information rarely has received any training, it opens the
door to some common, potentially costly consequences. Seemingly harmless mistakes
can attract the unwanted attention of the IRS. A few common examples include: not
properly classifying employees versus independent contractors, consultants, and
freelancers, not deducting the sales tax from the total sales, not claiming the full amount
of tax deductions or using the tax deductions incorrectly, even using nontraditional
expense categories or putting itemized expenses in the wrong category.

6. Not setting up back up systems. Business owners who do not establish a system for
backing up financial data are asking for trouble- especially if data is only recorded
electronically. There are several ways to back up your precious financial information:
periodically transferring the data to a CD, purchasing an external hard drive, relying on
tape back ups, or using online back-up services. Each option has its pros and cons, and
you should do your research in order to find the most suitable match for your business. In
addition, it is a good idea to have some hard copies of information on hand.