If you're a first-time business owner, the financial aspects of running a company can be daunting.
From keeping track of expenses to preparing for taxes, there's a lot to learn.
New business owners often try to do it all themselves in order to save money, but this can lead to mistakes that end up costing more in the long run.
There's a lot to think about when doing your own accounts, and it's all too easy to make mistakes.
With that in mind, we've listed seven common accounting mistakes new business owners make so that you can avoid them.
#1 - Mixing Business and Personal Finances
Combining your personal and business finances is never a good idea.
Not only does it make it harder to track expenses and income, but it can also lead to problems come tax time.
Furthermore, business bank accounts and credit cards have special protections and features that personal accounts don't, so you could be missing out on these benefits if you're using your personal accounts to manage everything.
#2 - Not Keeping Accurate Records
One of the most important aspects of accounting is keeping accurate records.
This means tracking all incoming and outgoing money, as well as recording receipts and invoices.
Not only is this important for tax purposes, but it can also help you keep tabs on your spending and spot any financial red flags early on.
If you're not sure where to start, there are plenty of accounting software programs that can make record-keeping easier.
#3 - Not Staying on Top of Invoicing
If you're not invoicing customers promptly, you could be missing out on thousands of dollars in revenue, or at the very least severely harming your cash flow.
Not only that, but customers are more likely to pay invoices that are sent out in a timely manner.
When it comes to invoicing, there are a few key things to keep in mind.
First, make sure that you're including all the necessary information, such as the date, your company's name and contact information, and the customer's name and address.
Next, be sure to include a clear description of the work that was performed or the product that was sold.
Last, include the total amount owed and the date that payment is due.
If you can stick to these basic rules, you'll be well on your way to better invoicing practices.
#4 - Inaccurate Categorising
When it comes to categorising expenses, accuracy is key.
This is because tax authorities have specific requirements for what can be deducted as a business expense.
For example, if you're categorising travel expenses, make sure to include only expenses that are directly related to business travel, such as airfare, hotels, and meals.
Personal travel expenses, such as vacations, should be excluded.
The same goes for other categories, such as office expenses, marketing expenses, and payroll.
Be sure to only include expenses that are directly related to the running of your business.
#5 - Not Tracking Mileage
If you use your personal vehicle for business purposes, you may be able to deduct the cost of mileage from your taxes.
In order to do this, however, you need to keep track of all the miles you drive for business purposes.
This includes both regular travel, such as commuting to and from meetings, and one-off trips, such as visiting clients or suppliers.
If you don't track your mileage, you could be missing out on a significant tax deduction.
#6 - Not Keeping Receipts
In order to deduct business expenses from your taxes, you need to have receipts for all of your purchases.
This includes everything from office supplies to marketing materials to travel expenses.
The government isn't simply going to trust that you're telling the truth about your spending - you need to be able to provide proof.
#7 - Not Hiring a Bookkeeper
Last but not least, by far the biggest mistake that new business owners make is not hiring a bookkeeper or an accountant.
While it's possible to do your own accounting, it's not advisable, especially if you're not an expert in the field.
An experienced bookkeeper can save you time, money, and a whole lot of headaches.
All of the mistakes listed above can be avoided simply by working with a professional.
If you're serious about running a successful business, outsourcing your bookkeeping should be one of your top priorities.
Running a business requires making a lot of important decisions, and one of the most crucial is how to handle your finances. If you're not sure where to start, these seven accounting mistakes new business owners make can be a good place to begin. Avoiding them will help you keep accurate records, invoice customers promptly, and avoid costly mistakes coming tax time. If you're just starting out in business, be sure to keep these tips in mind.
Start strong with these essential tips for new business owners. Together with Book Metrics, let's take action and master your business's finances today!