As a business owner, you carry more weight on your shoulders than most.
When it comes to the small, medium, or large business accounting and bookkeeping tasks in your business, even the small mistakes can cause big financial problems.
That’s why in this post, we’re going to share the 5 business accounting mistakes that can cause big financial problems for you, your business, and your future.
We’ll also share some ideas on how to identify these mistakes and take action before they become huge accounting mistakes.
And if you’re in a place where you’ve already made these mistakes and your books are a mess, click on the button below to schedule a free initial financial analysis with me, your expert Accountant and Master Bookkeeper…I analyze and reconcile the first time, guaranteed.
5 Business Accounting Mistakes
#1. Treating Profits As Cash Flow
You’ve probably heard this phrase before:
“You have to spend money to make money.”
When it comes to profits, this is incorrect. Yes, you need to spend money on inventory, staff, supplies, etc…
That money does not come out of your profits.
Profits equals the cash you have leftover AFTER all your revenue, expenses, etc are accounted for.
Cash flow is the path of money into, through, and out of your business.
The money that stays is typically profit. Get this one thing wrong and you could land yourself in some hot financial water.
Those who treat profit as cash flow tend to find themselves in more debt than they need. They’re financials are typically a mess. And they are stressed more than the average business owner because they can’t seem to balance the “money in, money out” equation.
So, if you see any of those red flags in your business, get it corrected as soon as possible.
Or, you can give me a call now for a free initial financial analysis on how to fix your Cash Flow, right now.
#2. Getting Rid of Receipts
You know those pieces of paper printed out and handed to you after you buy something? Even though everything is virtual, keep everything in an electronic file.
Those are receipts. And while they may seem like a nuisance to collect, track, and organize, they are the proof that you transacted money somewhere at some point in time. It’s the proof that you’re spending or collecting money in the market.
In all, paper trails are a powerful source of proof to those third-party entities imposing you pay more taxes than necessary.
When you throw away receipts or delete virtual receipts, you destroy proof of your business transactions. Whether it’s for a $2.98 coffee from the gas station or a $257,987 equipment purchase, receipts are your friend.
Even if you don’t pay with cash, get a receipt. Something to prove the transaction occurred.
#3. Blend Business and Personal Expenses
If you’ve ever traveled internationally, then you’ve been asked this question at the passport counter before entering another country:
“Is this trip for business or pleasure?”
This is how you ought to separate your expenses.
Ask each expense:
“Is this for business or personal?”
Why does this matter?
The IRS treats your expenses differently, whether business or personal.
Business expenses can be written off to reduce your tax obligation.
Personal expenses are simply “sunk costs” that you cannot write off.
Here’s the truth:
When you blend your business and personal expenses, you create a huge headache for yourself parsing, categorizing, and organizing expenses.
If you don’t separate these two types of expenses, then you may end up paying way more in taxes than you should have. This can put a lot of strain on your business and its ability to avoid financial ruin.
#4. Ignoring Accounts Payable and Vendor Statements (Money Out)
You’ve got a percentage of employees, vendors, and more that run on “autopilot.” You probably look at invoices and statements, pay them without much thought, and move on with your day. Your system works…
Not taking a closer look at your invoices and vendor statements could stress your business with phony invoices, mismatched financial obligations, and even fraud.
While the payout on these types of things may look minimal on a balance sheet, they spell ruin for your business down the road.
The longer you pay phony invoices, the more money you cannot use to grow your business.
The longer you wait to correct vendor financial obligations, the more you invest in another business instead of your own.
And the longer you wait to correct fraud, the more risk your business is at for failure.
Don’t let the “automation” of your system blind you to the potential for negative financial consequences.
#5. Chasing Accounts Receivable (Money In)
Not many people enjoy being a bill collector. You contact your customers, vendors, etc. and let them know they owe you money. You invoke a deadline, and then you wait to see if they pay.
In some cases, people don’t pay. In most cases, they will pay.
That time spent doing this usually gets pushed aside for more immediate demands.
An employee just quit? You’ve got to replace them to make sure operations continue to run smoothly.
A supplier just went out of business? You’ve got to find a new one and negotiate rates.
Your child just got into a private out-of-state college? Now you’ve got to find a way to leverage your business to either get a loan or help pay out of pocket for it.
Sitting down to spend hours every week to “collect bills” may not be ideal for you as an owner.
If you find yourself “chasing money,” then you’re also not increasing revenue. The opportunity cost here is that you’re spending your valuable time chasing down money instead of creating more of it through your business.
This task is better suited for someone else so that you can be free to pull bigger “revenue levers” in your business.
Here are the 5 business accounting mistake that can cause you big financial problems one more time:
- Treating Profits As Cash Flow
- Getting Rid of Receipts
- Blending Business and Personal Expenses
- Ignoring Accounts Payable and Vendor Statements (Money Out)
- Chasing Accounts Receivable (Money In)
If you want help with accounting or bookkeeping or your books are a mess, then click the button below to set up a call for a free initial financial analysis.