Don't Make These 5 Small Business Money Mistakes
It's tough to keep your small solo business going - satisfying customers, doing marketing and promotion, and keeping the books. But don't neglect these accounting and financial tasks. Doing these tasks can help you spot problems with your bank account and your income. Not doing them can mean problems with overdrafts, employee embezzlement, and higher taxes.
1. Not Reconciling Bank Statements at Least Once a Month
I know you're busy, but if you have a good online accounting system, you should be able to reconcile your business bank statement when you receive it. If you have a bookkeeper, ask to see a detailed list of all transactions each money, or run the list yourself before turning everything over to the bookkeeper.
Reconciling a bank statement is one way to prevent embezzlement if you have employees. Even if you don't have employees, it helps you spot possible problems. Did that bill get paid? Did you record the income from that work you did?
To do the reconciliation, you don't need to print out the statement, if your bank allows you to download all of your bank transactions into your accounting system. Then, you can do a reconciliation.
Check to be sure that every check has been signed by you or someone else you trust. Track down anything suspicious, either on the income or expense side.
2. Not Tracking Receivables and Working on Your Collection System
I can't prove it, but I believe more money is lost by businesses from not collecting receivables than in any other way. Rule #1 in collecting receivables (money owed) is that the longer the receivable is owed, the less likely it is that you will collect. Setting up an accounts receivable collection system in which you assertively go after customers who haven't paid can bring in revenue that might be lost.
3. Paying Too Much Tax—or Too Little!
The more legitimate expenses you have in your business, the lower your business tax bill. In order to make sure you can support these expenses if you get audited, you must have documents that show these expenses as business-related.
The expenses most small businesses often forget are typically travel expenses and meal and entertainment expenses. Keeping good at-the-time records of money spent and business purpose can help you through an IRS audit.
Be sure to track vehicle mileage for business driving by keeping a log book in your car or using a travel log app.
If you have a cash business, paying business bills in cash, or you take in a lot of income in cash, you still must be aware of taxes. Forgetting to record cash expenditures, as I mentioned above, increases your tax bill. Not recording cash income can cause problems at tax time. In either case, get in the habit of keeping good records of all cash transactions. That includes setting up a petty cash system to record incidental business expenses.
4. The DIY Mistake—Not Using Professional Advisors
Small businesses often start on a shoestring, and solo business owners often think they can muddle along without help. "I'm not big enough to need an advisor," you might have said. Trying to do it yourself can cause you problems at tax time, if your business takes off. If you decide to hire an independent contractor or employees, you also need advisors.
Every business, no matter how small, needs two business advisors at minimum: a financial and tax professional (like a CPA) and an attorney to help you set up your business and on standby for questions.
5. Not Asking Questions!
It's the questions you DON'T ask that will get your business in trouble! As you review financial statements and bank statements, as you discuss business issues with your advisors, bring up those "stupid questions" you don't think are worth asking. You will be glad you did.