The 5 Biggest Accounting Mistakes Made by SME’s

The following article (slightly edited by me) was recently published in the US by CPA Practice Advisor and is as relevant here as in Trumpland:

“Small business owners face numerous everyday challenges, and they usually conquer them with their entrepreneurial strength. Unfortunately, keeping the books on their growing business is not a skill someone can simply persevere through and get it right.

And the potential consequences of messing up on the accounting functions can have serious consequences when it comes to the success or failure of a business. The founders of the cloud accounting system Freshbooks have come up with the top five accounting mistakes that small business owners face, and how to avoid them

Not staying on top of receivables

Getting paid is fun. Managing who owes you money is usually not. But staying on top of your receivables is critical to ensuring your cash flow is healthy and that you know where you stand financially each month. It also ensures that at tax time, you’re not scrambling to piece together which payments belong to which invoice.

Fortunately, there are more software options than ever before for freelancers to painlessly manage this part of their business. Freelancers should consider taking advantage of cloud accounting tools that allow you to send invoices and update payments from anywhere. Software can allow you to even automate most of the billing process, including sending out late payment reminders and enabling your clients to pay you online.

Not keeping expense receipts

How many times have you scanned your bank account statement trying to figure out what a charge was for? Not only is this frustrating, but not having copies of your receipts can land you in trouble at Revenue Audit time. If you’re unable to accurately report your expenses, you might find yourself getting nailed with costly penalties.

Best practices for keeping organized include:

  • Using only your business credit or debit card to cover business related expenses
  • Keeping copies of your receipts in one place and reviewing these at least weekly or monthly while they’re fresh in your memory

Can you snap a photo of your receipt while you’re on the go so you’ll always have a digital copy when you need it. You can also sync your business bank account or credit card so expenses are automatically imported.

Mixing personal/business finances

When starting your own business, a first step should be to open a separate bank account where you deposit your income and pay your business expenses from. A second step should be getting a credit card that you will only use for this business. These are important signals that you’re running a business and not a hobby.

Not hiring a professional to handle taxes

In an effort to save money, freelancers might be tempted to do their taxes themselves, but hiring a professional you can trust will pay off in two ways. First, your accountant can apply the most up-to-date tax laws to ensure you’re benefiting from all the deductions you qualify for..

Secondly, working with a professional on your taxes means they can help resolve any discrepancies or confusions resulting from guesswork that might have otherwise lead to an audit, saving you potentially thousands of € in penalties.

Not getting on the same wavelength as your accountant

Your Chartered Accountant can be an ally to you and your business, since they have the skills and training to help guide important business decisions you might face. Is it time to hire your first employee? When’s the right time to make a big purchase for your business, like upgrading your software or buying a new computer? All too often however, creative professionals are uncomfortable with accounting jargon and might be embarrassed or intimidated when trying to communicate with their accountant, resulting in them not asking the questions they have.

It’s important that when you don’t understand, that you ask your accountant to explain things in plain language. Or if you continue to find this tricky, consider finding an accountant who is more on your wavelength and communicates in the style that works best for you”

 

Leave a Reply