Entrepreneurs are great at a multitude of things — generating new ideas, problem-solving, motivating others, and keeping dedicated to growing their business to name a few. Despite this, roughly 90 percent of entrepreneurial start-up ventures fail within their first five years of business. This seems awfully high for businesses that are run by so many talented people, don’t you think? Despite their capability of handling many different responsibilities, the one area where the majority of entrepreneurs fall short is with their accounting.
As a small business, you may think you are safe from making critical financial mistakes, but in fact, this is when accounting errors are most prevalent and impactful in the business world. The smaller your business, the more important your financials are to your success
Here at Third Coast Accounting, we’ve made a list of the most common accounting mistakes that occur with entrepreneurs and their small businesses.
Mixing Business and Personal Finances
This is one of the most common mistakes made by individuals who own small businesses. The more you begin mixing your different finances together in your accounts, the more difficult it becomes to separate them when it comes time to report your income and taxes of your business. As a rule of thumb, always create a separate business account for all of your business’ finances from the get-go, and keep it separated.
When you pay for your business expenses out of your personal funds but don’t reimburse yourself, you are misreporting your personal income — meaning you will overstate it in your taxes. Always write off business expenses that you use personal funds for.
Declaring Revenue Before Delivery
Be extremely wary of declaring revenue immediately after making a sale. This is a bad habit that can be costly in the long run. While your books appear better initially, when you need to see your true profits in the future it can come back to haunt you. This is because you are overlooking the delivery expenses that occurred after the sale, therefore inflating your true profit. All expenses must be accounted for so you don’t end up thinking you have a higher profit margin than you really do.
By losing track of even a single transaction record, this can cost you a substantial amount of money or even bring your business to an end in some cases. It’s vital for you and your business’ sake to develop a system for recalling exactly when a deposit is made, invoices are created, and clients are given credit on their account.
Not Utilizing A Professional Accounting Firm
As an entrepreneur, you can’t do everything on your own, and your finances and accounting are certainly one of, if not, the most vital aspects of your business to protect and ensure is operating smoothly to keep you afloat. Accepting your specific skills and weaknesses is key to being a successful entrepreneur. So if accounting is not one of yours, give a certified accounting firm a call to get professional help with your business.
At Third Coast accounting, we provide accounting services to small businesses and entrepreneurs in and around Chicago to help keep your finances on the right track — allowing you to focus on running and growing your business. Give us a call today to get started.