There is no doubt that small businesses make for a greater percentage of victims when it comes to accounting pitfalls, mostly due to the lack of experience and resources. Enumerated below are some steps in which small businesses can avoid these common accounting pitfalls.
Keep Your Records Updated
One of the crucial mistakes most small businesses make is lagging in their day-to-day financial statements. As there are no dedicated departments that exclusively take care of the finances of these businesses, it becomes rather easy for the administrators to overlook this aspect regularly. It is vital that your bookkeeping is updated alongside your financial statements throughout the business cycle. This is one of the most effective ways to avoid any costly errors that might occur, and it even goes so far as to maximize your business tax returns.
Therefore, data entry should be one of your foremost priorities. It needs to be mentioned that keeping your financial records up to date is not just productive in the tax season, but also it will help you, as a small business, to optimize your bottom line. As a common example, we can cite that several small business owners do not keep a record of the paid and unpaid invoices, therefore making it easier for them to overlook an instance of an unfulfilled invoice. This even has the potential to be the discrepancy between your cash flow being positive and the loss of revenue because of the lack of proper records of your small business.
Differentiate Your Business and Personal Finances
One of the primary mistakes that small business owners make is to fund the company using personal revenue to the point that they make it impossible to distinguish between personal and business finances. Any overlap between these two categories of finances can make for an enormous accounting pitfall, especially in small businesses.
It is estimated that when you keep your personal and business finances separate, you minimize the risks of an IRS audit and have the upper hand in proving the clarity of your business cash flow. This would also help you with your tax returns, as relatively cleaner records will help you economize on your tax deductions and write-offs.
Maintain Your Receipts
Another aspect that many small business owners seem to ignore is the organization of their business receipts. The receipts you keep are the evidence of your claims and financial records. Given that they are precious not just for your internal recordkeeping but also from a legal standpoint of taking care of any conflict you might have with others regarding accounts, the organization and maintenance of your receipts become an indispensable task.
Several small businesses are favoring the digital recording of receipts to reduce paper trails. You must know that despite the medium of the savings and the organization of tickets, maintaining these records is most important. If you are a small business owner looking for accounting and bookkeeping services, you can elicit the services of Stonehenge Accounting.