Top 3 Accounting Mistakes Made By Entrepreneurs
Ryan Born is Founder & CEO of AudioMicro (http://www.audiomicro.com/). In this video he shares the top 3 accounting mistakes made by entrepreneurs.
- Missing a deadline
- Mark it in your calendar as a reoccurring event
- If you miss a deadline, file for an extension
- Revenue recognition
- Revenue is recognized upon delivery of product or service
- Forgetting to book accruals
- Accruals: expenses that have not been received by the end of an accounting period
As a business owner and CPA, I've seen a lot of different mistakes made by entrepreneurs. And I've been through a lot of different closings of books myself. And during that time period, there certainly have been a few mistakes that I have seen folks make, and here's how you can avoid them.
The first mistake that typically happens is you missed a deadline. Missing a deadline would be not filing a return on time or something of that sort. The easiest way to avoid that is first off, put in your calendar every single year that deadline will be recurring that you have a business. For instance, your tax return due date, okay? Specifically related to tax returns, file an extension. They are automatic, they take about 5 minutes to do and they will give you entire 6 months typically to then file that return. So make sure you don't miss the deadline by filing an extension.
Secondly, rates for revenue recognition. A lot of companies don't record their revenue properly. It's their very first time as an entrepreneur, it's a total common mistake to make. So for instance, if you're in the Groupon style daily deals business, you may be receiving cash from your customers for deals you sold. And you may be recording a revenue right when the cash was received. In actuality, it's deferred revenue. It's not revenue until that deal is delivered and the person is actually gone to, for instance, the restaurant and redeemed. At that point, that's when the revenue is actually recognized. So that revenue recognition, all sorts of different revenue recognition problems typically occur in very small startups.
And finally, forgetting to book accruals. Accruals are liabilities that you may not have received an invoice for, for instance. Now, they occurred but you just don't have any detailed support to be booking them based on it. But you need to, every accounting period, if you're on accrual based accounting, come up with what those accruals are, what are the liabilities that are out there that are related to this time period that haven't made their way into the books? They need to be estimated, for instance, accrued vacation for employees. There’s actually a liability that your company has for the payroll related to a vacation time that has not yet been taken by those employees. So don't forget to book your accruals. So there you have it, mistakes that entrepreneurs can make when keeping their books for the first time.