Managing the accounting part of a business is not limited to bookkeeping (although it is undeniably a crucial part of it). There are other processes that are more demanding and could get quite overwhelming for new, and inexperienced, business owners. These activities include managing ledgers, journals, financial statements, and income tax records.
And the more the company grows, the harder it will be to efficiently manage the journals and do proper bookkeeping. Instead of neglecting the financial part of the business, it would be better to hire professionals. Otherwise, the owner will have to get an experienced accounting firm to rectify any errors they may have made. This will result in the business having to pay more than they would have initially done. Furthermore, bad management of finances could lead to a failing business.
1. Assuming bookkeeping is easy
It is a common misconception that bookkeeping is an easy task that only involves inputting data into software. Unless the business owner has proper knowledge of what is required by industry regulators and tax authorities, they will not be able to keep accurate accounts on their own.
Without this knowledge, there will be a lot of anomalies and errors in the records of the business. Considering the importance of bookkeeping to the proper running of a successful business, it would be better to hire an accounting firm to maintain the books.
2. Not understanding the requirements for a small business
An accounting professional knows the type of documentation and licenses required for starting up a business. Even if you offer excellent services if you don’t know everything about that industry you might run into problems down the line. An accounting firm can help you set up your business venture with confidence.
3. Not tracking business costs accurately
Accounting and bookkeeping lose their effectiveness when records are not kept accurately. This will result in your business being left vulnerable to being late on important bills and to losing money. It can also:
- get in the way of expanding your business
- set you up for headaches come tax season
- fail to reflect that you paid a bill
- cost your business money
- undermine your ability to plan for next month or beyond
4. Making data entry errors
There are several data entry errors that can occur even with the use of accounting software. Some of these errors include:
- Entering incorrect dates for transactions
- Entering wrong amounts when preparing invoices for customers
- Applying full payment for an invoice when only a partial payment has been received
- Applying a payment to the wrong invoice
- Selecting the wrong bank account
The owner will, therefore, have to be very careful when making entries. And if there were errors, the owner will need to have the necessary knowledge to know how to fix them. An accounting firm, on the other hand, can make sure that all accounts are entered accurately and can easily correct such errors.
5. Not understanding what a business write-off is
Unless a company completely comprehends what can be added as a business write off and what cannot, they risk running into a lot of problems when tax season comes around. How? They will have to pour over and dissect every transaction to ensure that the business does not miss an expense that could have been listed as a business deduction.
6. Inefficiently managing billing
A business can’t survive if there is no cash flow. Cash flow is essential to keeping a business operating from one day to the next, as the company will have to tap into it for expenses, payroll, and other needs. And for that to happen it is crucial for the billing or invoicing, of customers to be done efficiently.
Proper billing processes will go a long way toward ensuring that revenue comes in on a timely basis. But if the business doesn’t have a good handle on the accounting end of their operations, they will be unable to prepare invoices in a timely manner. The more they delay in sending invoices out, the more time it will take for the clients to pay them.
7. Not planning for tax season properly
Do It Yourself tax software has been designed to simplify tax return and may seem like a good solution for small businesses. After all, it can help cut costs as there will be no need to pay an accountant or other tax specialist to get the job done.
But if you lack the necessary knowledge, you can easily stumble when tackling the tax filing for your small business. This is especially challenging if the necessary steps were not taken along the way to properly document the company’s finances. An accounting firm, on the other hand, will ensure that all records are up-to-date and will not struggle as much when tax season comes.