As a business owner, you must stay on top of your finances if you want your business to succeed. That said, you need financial data that is up-to-date to make sound business decisions; you can achieve this with expert-level bookkeeping and accounting. It is crucial to have accurate financial data to assess your business. Your primary goal is to maximize your profits while keeping your expenses low.
Accounting and bookkeeping are tedious yet integral parts of your business process. They can be overwhelming and time-consuming, especially for a small business, which is why some business owners often neglect them. It would help if you had a bookkeeping and/or accounting team to handle your finances. This will come in handy when the budgeting and tax filing seasons arrive.
Consistency and structure are some typical traits of successful businesses. For a business to thrive, all systems and operations must flow together smoothly. Otherwise, there would be chaos, prompting the business to shut down. Consistency and structure are just two of the many benefits bookkeeping and accounting offer.
What are Bookkeeping and Accounting?
Bookkeeping and accounting are two administrative duties that are crucial to any business. To those with little experience, both may seem to be the same profession. Both deal with financial data and need basic accounting knowledge. But, to debunk a common misconception, these functions have different roles and advantages. Let’s take a closer look:
Bookkeeping
- Daily Recording of Financial Transactions
- Posting of Debit and Credit
- Issuance of Invoice
- Payroll Management
- Balancing of Ledger, Accounts, and Subsidiaries
Bookkeeping is the recording of every business transaction based on documentation like receipts and invoices. It is the initial step to the whole accounting process. With proper bookkeeping, businesses get a clear and realistic judgment of their performance.
Bookkeepers keep accurate, consistent, and easy-to-read ledgers for accountants to interpret. You or an accountant oversees this crucial task.
Accounting
- Analysis and Verification of Data
- Generating Reports and Performing Audits
- Providing Forecasts, Trends, and Growth Opportunities
- Assistance in Comprehending Implications of Financial Decisions
Accounting is the analysis of the financial data collected by the bookkeeper. It provides you with a crucial insight into how your business is performing. It, in turn, allows you to make rational business decisions and avoid financial pitfalls. Accounting brings every financial aspect of your business and provides forecasts based on findings.
Bookkeepers carry out the accountant’s decision on how to deal with transactions. Accountants cover a much broader range of duties compared to bookkeepers.
Although both are different processes, they work together for the success of your business. If your bookkeeping is adequate, the work of an accountant will be much lighter, and so will the rest of your business operations. For the accountant to organize and interpret accurate financial records, the data recorded by the bookkeeper must also be accurate.
Now that you know the definition of these terms and how they work in the scale of business, it is time to list the 5 Worst Bookkeeping and Accounting Mistakes Businesses Make.
#1 Not hiring a bookkeeping and accounting team before starting a business
Have you ever heard of a business plan?
A business plan is an official document that every business needs before launching. It defines the business and how it can achieve its goals from a marketing, operational and financial perspective. It serves as a map to direct the business to where it wants it to be.
Alt-text: accounting and bookkeeping services business plan
It is a terrible idea to start a business without a business plan. Without one, a business is lost or stuck in limbo with no direction. A business plan allows you to head in a direction and tinker with ideas without spending too much time and money on it.
Bookkeepers and accountants can help devise a sound business plan by offering their expertise and experience. They can help determine the most suitable business structure for your needs by providing a detailed financial analysis. Besides that, they can also help open a business bank account or advise on what sort of accounting app you may require.
#2 Paying too much or too little taxes
Paying too much tax is like giving away money while paying too little will get you into serious trouble. Taxes can be quite daunting as there are deadlines to make and plenty of rules to follow. It’s a good thing accountants and bookkeepers know taxes like the back of their hands. If for some reason, you can’t get yourself a team to handle all the finances, you’ll need to educate yourself on tax laws and procedures to secure your company’s status and cash flow.
Bookkeepers and accountants can calculate your income and employee-related taxes. They could also make necessary adjustments to sales taxes and maximize your tax deductions. You’ll never have to bother about missing deadlines because you have tax-ready financial statements prepared. Getting your taxes right increases the chances of running a lucrative business and succeeding.
#3 Mingling of personal and business expenses
Acquiring a bookkeeper and accountant will teach you never to mix personal and business expenses. The mingling of personal and business expenses is a bookkeeping nightmare. Not to mention, it can also create auditing and even legal problems.
#4 Tossing out receipts
You cannot back up the deductions you made on your tax return when the receipts are missing. Whether intentional or unintentional, any claims made without documentation during an audit can lead to a hefty fine. Avoid throwing out receipts, and save yourself from paying unwanted fines. You can digitize your receipts as redundancy, and to be safe, keep receipts for seven years.
#5 Inaccurate and error-prone reports
As mentioned above, tax agencies have little to no tolerance for errors. Any misrepresentation and they can slap you with a substantial penalty. You need to use an adequate record-keeping system and generate precise reports. Check your returns many times before filing your taxes. Save yourself the trouble of paying a massive sum of your profit to fines. Accounting experts can save you time and money with proper record keeping and reporting that adhere to the Financial Accounting Standards Board.
Takeaway
Proper bookkeeping and accounting impose a consistent process that prevents you from making these mistakes. As a result, you can save money from fines and audit blunders by employing these essential services.
When it comes to accounting and bookkeeping, you have a ton of options. There are virtual firms that you can outsource. You can hire a whole staff without having to make an in-house department. Best of all, they can work with you anywhere from the globe.
Operating a business while overseeing your finances at the same time can lead to devastating outcomes. If you are doing the bookkeeping and accounting yourself, you are bound to make such mistakes. Prevent this from happening and safeguard your investment. Employ competent bookkeeping and accounting professionals as early as today.