Small business accounting pitfalls to avoid for growing startups
July 19, 2019
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What’s more overwhelming than accounting is the untamed abyss of expenses. Your financials are worth looking into. If you’re going to focus on anything, let it be your money.
Small businesses all tend to run into the same problems. Fraud, lack of growth, and collapse. They all have one common trait: poor accounting. For these reasons, it should be common practice to ensure your business follows these accounting principles.
Although it may sometimes hurt to look at the money coming in and going out, and despite the language around accounting appearing foreign, it’s important.
Your biggest small business pitfalls are generally closer than you think. They might even be you. If you’re neglecting your accounting, you might not realize until it’s too late.
What is accounting? It’s just how it sounds: the ongoing process of tracking of money. That includes expenses, profit, credit, and everything in between.
Accounting has three main financial statements, including the income statement, the balance sheet, and the cash flow statement. These three statements help track money earned vs. money owed, and the trajectory of profit.
Some accounting services that your small business might be neglecting include bookkeeping, accounts receivable, accounts payable, payroll, basic income and expense tracking, inventory tracking, etc.
The main purpose of accounting is to be accountable, which in the end keeps your books neat, your money in place (where it should be), and your business growing steadily.
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Don’t wimp out on budgeting
I know. Math is math. But when it comes to running a small business, you need to establish clear parameters and stick to them.
Budgeting is essential to keeping a small business afloat, let alone building a startup. Only by some risky miracle can you expect to grow without planning and tracking your expenses.
Without getting a small business loan, most startups wouldn’t be able to “startup” at all. It’s basically impossible to take off without assistance from a government and/or private loan. And yup, those need to be paid back eventually, so be sure to track what you owe, and the interest connected.
But to avoid owing too much, check out this list of small business grants.
Intermediate-Term Loan by OnDeck
OnDeck offers business term loans up to $500,000 and business lines of credit up to $100,000 to qualifying small businesses. The process is simple and looks at the overall health of a business rather than personal credit alone. Their quick application requires little to no paperwork. Decisions can be given in minutes, and funding is delivered in as fast as 24 hours.
Separate your personal and professional expenses
When you start to blend your personal and business expenses, you’re not sticking to your budget. I mean c’mon, we JUST talked about this.
Separate accounts are necessary for tracking your spending, no matter how small or rare the payment. Dipping into your business’ profit has its obvious issues.
You need a separate business credit card (that’s square one) and a segregated space to store receipts. A business credit card will separate human you from business you and enable your company to build its business credit score. This is important in order to get loans.
Don’t neglect tax time
Taxes aren’t sneaky. We all know when tax season is. Really makes you miss winter. But we ignore thinking about it like we’re in denial.
The first step is acceptance. The worst thing you can do is wait until the last minute. Instead, be proactive.
Put money aside to ensure your taxes are covered regularly. You’ll hardly notice this money is missing, and when the time comes to use it, you’ll be glad it’s there. It’s better than the chunk that taxes will bite out of you last minute.
Remember, ignorance is no excuse in the eyes of the law. And tax law is no cakewalk. If you’re lacking the expertise or knowledge of accounting basics, it’s better to be safe than sorry and hire a professional.
Invest in the pros
Most startups bite off more than they can chew. It’s just part of being a small business owner. And of course, it’s hard to pay someone to balance your money when you don’t think you have any.
But accounting is a pillar in your business’ success and should steer small business administration.
You’d build a fire to stay warm, but you’d never leave it unattended. Your financials aren’t any less dangerous. Untamed, they might just leave you breathless.
Sidestep that horror show by investing in the right pros and tools. There are many resources to help organize and monitor your financials. Xero and Quickbooks are popular and affordable accounting software options for small businesses and are easily integrated with your Veem account.
Hire an accountant
Every small business should have an accountant. These professionals can help with necessary accounting tasks that need attention. An accountant or bookkeeper’s first job would be to set up a chart of accounts to help track accounts and transactions within your small business.
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However, you should research different accounting options before settling on just any available accountant. Find someone that’s familiar with useful accounting software and that could help direct your small business administration.
Further, accounting firms know the ins and outs of tax rules and help small businesses get the assistance they need.
In the end, accounting costs don’t compare to the consequences of inaccurate taxes, or the silent undertow of a negative cash flow.
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