Accounting mistakes can really put a hold on your small business and put it on shaky ground. Mistakes are common, unfortunately they happen more often with new and young businesses. Edge Tax Accounting in Prescott would like to bring you these 5 accounting mistakes to avoid:
Not staying up on receivables:
When you issue an invoice, a receivable is recorded – meaning that a customer owes you money. As soon as you receive payment from that customer, it should be applied against the invoice to mark it as paid. Sometimes this is not handled correctly. At tax time you’re left with a bunch of customer deposits sitting in your revenue account and a receivables report that doesn’t make sense. The consequences? Hours wasted updating the receivables listing, overpaying on your taxes, and high bad debts. Making it a point to follow up on your receivables – and apply payments to invoices on a monthly basis – can save you tons of resources in the long run.
Not keeping expense receipts:
Many business owners fail to save receipts, which causes many tax, accounting, and cash flow problems. How many times have you looked at your bank account statement and had no clue what that $100 charge is? Is it supplies, a business meal, equipment? Not having an actual receipt with details can result in incorrectly reported tax expenses and a high tax bill if you’re ever audited. The solution? Save a receipt of every business purchase. This is cumbersome, so here are a few tips to make it easier: only use your business bank or credit card to pay for business expenses; have an envelope in your bag/car where you can put all your receipts instead of putting them in your pocket, purse, or worse, trash can; once a week/month go through the receipts stored in the envelope and file them to your tax folder.
Not recording cash expenses:
It is crucial to track all expenses related to running a small business so these costs can be subtracted from total income at tax time and to give you a better idea of how much money you are making. While credit cards, debit cards, and checks from your business’s bank account are easily linked into your accounting software, it’s easy to overlook expenses paid in cash. Most commonly, some of these expenses are not recorded and thus forgotten – this causes the business owner to overstate income for the year! Be sure to develop a method for tracking these cash expenditures.
Not hiring a professional to handle taxes:
Small business owners often try to save money by doing their own taxes. The reality is not hiring a professional can cost more down the road. You may not claim all the deductions you qualify for, or you might underpay your tax bill – leading to penalties and other fees. Hiring a professional means you’ll have an expert who knows what they’re doing, and can apply the right tactics for your financial situation. They can keep updated on the ever-changing tax laws and help you plan ahead for potential tax hikes. Paying for a professional bookkeeper can also help keep your costs of an accountant at a minimum, since they do all the prep work. Plus having another pair of eyes is never a bad thing, especially when it comes to finances and taxes. The success of your small business depends on the accuracy and organization of your financial paperwork.
Not getting in tune with your accountant:
So, you’re sitting there with your accountant, in a fancy office, listening to this:â€¨ ‘EBITDA is strong, way up from last year.’ You shift in your seat. You nod. â€¨It continues, ‘Add in D & A, and your bottom line is still positive. And here’s the kicker, thanks to loss carry forwards, tax liability is nil.’
This is confusing. What did they just say? It’s the bane of many small business owners. The biggest problem is most small business owners are too shy to tell their accountants that they might as well speak Romulan. You’re a small business owner. You’re not a financial professional. And buzzwords, jargon and fancy strategies are why you pay your accountant!
Would you rather hear this? ‘We used accelerated capital cost allowance to bring your tax liability to nil.’ â€¨Or this? ‘There’s a temporary tax program that lets us completely write off all of the new computer equipment you buy. So if you need a new IT kit, buy it now cause we’ll use that cost to get your tax bill down.’ Bottom line is, if you and your accountant speak the same language then she’s part of your team. She’s watching your back, and she’s providing advice you can bank on.
At Edge Tax and Accounting we speak your language! Need help with your business taxes? Contact us today to see how we can fix the problems you didn’t know you had!