Poor accounting practices can lead to painful financial problems that can set you and your business back from your goals (or even fail). So why don't people pay more attention to them?
Perhaps people find these tasks too time-consuming or don't understand their importance. Whatever the reason, failing to practice proper accounting practices can result in significant damage to your business in several ways. Here are six.
Not reconciling your bank account
Doing this is one of the most important things you can do for your business, yet so many small businesses don't do it. Why is this so important?
Money can slip through the cracks
Significant discrepancies in financial statements may go unaddressed without regular comparisons, such as using a bank statement reconciliation template.
Filing taxes late
As tedious and time-consuming as taxes may be, filing them late will only cost you more in the long run. How so?
Interest and penalties can take place
These costs can quickly add up, and if you're audited and found to have filed your taxes late, you may also be required to pay back taxes.
Organize your tax information throughout the year, so you're not scrambling to get everything together at the last minute.
Not tracking expenses
You may think you have a good grasp on your business expenses, but if you're not tracking them, there's a good chance you're leaving money on the table. In what ways?
Overspend and under-saving can happen
Tracking your business expenses is key to ensuring you stay within budget. Also, almost any costs incurred by a company can be deducted from taxes, saving you money.
Presuming profit means cash flow
Just because you're making a profit on paper doesn't mean you have the cash available. So how can this affect your business?
Failing to cover your expenses
Even if your business is profitable, you can quickly find yourself in hot water if you don't have enough cash to cover expenses. Therefore, you should track your profit and loss closely, as well as your cash flow, to get a complete picture of your business's financial health.
Errors in payroll
Calculating payroll is a complex task. Unfortunately, errors are too common. What are the consequences of this error?
Loss of trust in your employees
This error is especially true if employees feel they are consistently being underpaid or payment is always late. Not resolving this error will result in employee turnover and give your business a bad reputation.
Mixing business with pleasure
Commingling personal and business expenses is a huge no-no and can lead to many problems. What problems?
Loss of profit and legal action can occur
Tracking and writing off your business spending can be challenging, and you may also face legal trouble. The IRS has rules against commingling, which could lead you down a dreadful path.
Before you go
Avoiding these six poor accounting practices will help ensure your business runs as efficiently and effectively as possible. Remember, proper accounting is the key to making sound financial decisions and keeping your business in good standing.