You’re an artist. Or a baker. A consultant. Or a restaurant owner. You’re not an accountant. So understandably, navigating the world of managing your own finances might be a little challenging for you. While you’d love to hire an accountant to manage them for you, it’s simply not in the budget.
Not to worry: it’s absolutely possible to manage your own business accounts. But a lot of newer entrepreneurs tend to make some pretty big mistakes. Maybe reading about them will help keep you from making them too.
Huge Mistake #1: Using a Spreadsheet
Welcome to the 21st century, folks. You don’t have to use paper ledgers or a spreadsheet to keep track of your finances. Doing it the old-school way leaves you open to vulnerabilities (like you’ve never incorrectly added numbers before) that can throw off your entire accounting system.
Do yourself a favor and upgrade to accounting software. There are some pretty savvy accounting platforms that do a ton of things that you can’t do on your own, such as:
- Track expenses by linking to your online banking info
- Email invoices to clients
- Accept digital payments
- Create profit & loss and other financial reports
- Make it easier to file taxes
Huge Mistake #2: Not Taking the Right Tax Deductions
Did you know that if you work from home you can write off the space you use for your home office? Or that for every mile you drive for business purposes, you can get a tax deduction? Not being well-informed on small business tax deductions can hurt you and make you pay more than necessary on your taxes.
So get smart about what tax deductions you qualify for, and start taking advantage of them come tax time. If you’re unsure of whether you qualify for one, talk to a tax professional who can guide you through understanding what you’re eligible for.
Huge Mistake #3: Trying to Do Your Own Taxes
Certainly, it’s absolutely possible to file and pay your federal and state taxes on your own, but it’s not always a good idea. If your eyes cross at the mere mention of “Form 1120-W,” then it’s going to cause more stress for you to struggle to do them yourself rather than hire a professional to handle them.
Another problem with DIYing your taxes is that, as mentioned above, you might miss key tax deductions. Or you could miscalculate what you owe, and get slapped with a penalty fine by the IRS. Again, no one should pay more to Uncle Sam than they need to.
Do the right thing and find a tax professional who has experience with small businesses. Make your accountant’s life easier by keeping all your receipts and financial documents in a folder so that, come tax time, you’re prepared.
Huge Mistake #4: Ignoring Basic Financial Knowledge
Someone says “P&L” and you go into a coma. You don’t care about budgets and expense reports, so you pretty much ignore them. But do so at your own peril: you won’t get far in the business world without at least a rudimentary knowledge of financial terms and reports.
Start with this simple lesson: your profit and loss statement (also called P&L) shows you where you’ve spent money and where you’ve brought it in over the month, quarter or year. It’s useful to keep track of your expenses and watch for any discrepancies (like your travel expense category being $5,000 when you know you didn’t take any trips). Keep an eye on this and make sure that your expenses are appropriately categorized. Your tax professional will thank you.
Huge Mistake #5: Having a Shoebox of Receipts
While there’s nothing inherently wrong with saving your receipts, make sure they don’t serve as your expense tracking. Every expense should be logged through your accounting platform (and if you connect it to your bank, it’ll do it for you). You can also scan receipts with apps like Expensify so that you can get rid of all that paper.
Huge Mistake #6: Using Cash A Lot
Again, there’s nothing entirely wrong with this practice…if you’re also logging each expense you make for your business. But in general, using a debit or credit card or even check gives you a paper trail. In the event that you’re ever audited, you want all the proof of your business transactions you can get. Cash just doesn’t provide security in that way.
Huge Mistake #7: Being Cash Crunched
The reason we use the term “cash flow” is because that’s what cash should do in your business: flow in and out with ease. But when you don’t have enough to pay your employees next week, there’s a problem.
Look at your expenses to see if there’s anything you can do to cut back, and then brainstorm on how you can increase revenues. In the meantime, consider a working capital loan to tide you over until you get a working solution to your cash crunch issue.
Huge Mistake #8: Not Admitting When You Need More Help
Doing your own accounting can save you a bit of money, but not if you’re doing a poor job of managing your accounts. Sometimes it’s worth the cost to hire an accountant who knows tax and finance laws and who can help you keep everything straight and get you paid on time. That frees you up to put your attention back on running your business.
Are you guilty of any of these huge mistakes or others? What’s your biggest bookkeeping challenge?