12 Accounting Mistakes New Business Owners Often Make

A new business won’t survive long if it doesn’t have a solid cash flow and a good accounting system. Unfortunately, some of the most common financial problems stem from simple mistakes that new entrepreneurs can make the first time they’re tasked with keeping the books.

Fortunately, there are ways to avoid or correct most of these common mistakes and save your company’s bottom line. To this end, a group of members of the Young Entrepreneurs Council (YEC) answered the following question:

“What’s an accounting mistake new business owners might make and why? How can they fix it?”

Read on for their ideas.

1. Focusing on overall revenue

“Pay attention to actual profits and cash flow. Many new business owners focus on overall revenue, but once you factor in the cost of goods, personnel, fixed costs, etc., the net profit of the ‘company can be very different from the income coming in the door.~ Lisa Song Sutton, Sin City Cupcakes

2. Struggling with classifications

“New business owners sometimes run into trouble when they classify purchases as personal or business. As a result, leaders may end up paying more or less on their taxes. This number can vary depending on the type of error. If not unsure how something should be classified, it may be time to call in a professional accountant to help you keep your finances on track.” ~ Chris Christoff, MonsterInsights

3. Don’t hire outside help

“Accounting can make or break your business. Budgeting monthly expenses, bookkeeping, analyzing profit and cash flow statements, and financial planning are critical, detail-oriented tasks that require a lot of attention. If accounting is not your area of ​​expertise, you need outside help fast. Hire a professional who can focus on these activities while you move and build the business better.” ~ Brian David Crane, Spread Great Ideas

4. Ignoring the difference between cash flow and profit

“The biggest accounting mistake many new businesses make is ignoring the differences between cash flow and profit. You can sell a product for $1,500, but what happens if the buyer doesn’t make the payment on time? In that case, the your accounting records will show a profit, but you may not have the cash despite the profits you made. So keep proper track of your sales and expense records.” ~ Josh Kohlbach, Wholesale Suite

5. Cash instead of accrual reporting

“One of the common accounting mistakes business owners make is reporting cash versus accrual. A cash basis accounts when money is received or spent; accrual accounts when the sale or expense occurs. In the In the future, if you plan to sell your business or even acquire financing, advisers will only look at the accrual basis.” ~ Jessica Fialkovich, Exit Factor

6. Not recording expenses and deposits

“The number one mistake business owners make is that they don’t record the entries for expenses and deposits. This makes it difficult to reconcile the books at the end of the week or at the end of the month. It also makes it difficult if the IRS or your tax accountant start asking questions.” ~ Baruch Labunski, safe range

7. Not keeping an emergency fund

“An accounting mistake most new businesses make is not keeping an emergency fund. Emergency funds can help you bridge the gap between temporarily closing your business and going out of business altogether. So start to set aside an amount as an emergency fund.” ~ Thomas Griffin, OptinMonster

8. Forget about upcoming taxes

“One accounting mistake new business owners can tend to make is not keeping track of upcoming taxes. It’s possible to estimate how much money you’ll make and set money aside for taxes, but it’s still important to keep track of when they’re due pay. If you don’t pay your taxes on time, you could be charged interest and penalties.” ~ Blair Williams, MemberPress

9. Underestimate expenses and overestimate income

“New business owners can make accounting mistakes due to lack of experience or knowledge. They may not know how to calculate the correct tax rates or may not be familiar with the different types of taxes. The most common mistake is to underestimate your monthly expenses and overestimate your monthly income. This leads to underinvestment in the business and ultimately bankruptcy.” ~ Kristin Kimberly Marquet, Marquet Media, LLC

10. Mix business and personal purchases

“For new business owners, this is understandable. You go to the store to pick up office supplies and then add some last-minute purchases to the same transaction. However, this could cause a huge headache at the end of the day. taxes, and you can easily miss an expense that could be deductible. To fix this, always use a separate personal and business account.” ~ Shu Saito, All Filters

11. Not accounting for small expenses

“One of the most common accounting mistakes new business owners make is not accounting for all expenses, especially small ones. This can quickly add up and put your business in a difficult financial position. To avoid this, make sure- track all your expenses, no matter how small, from the start. This will help you stay on top of your finances and keep your business on a solid footing.” ~ Tonika Bruce, Lead Nicely, Inc.

12. Forgetting to monitor everything

“A common accounting mistake new business owners make is not keeping enough tabs on their finances. This can lead to cash flow problems and other financial problems down the road. It’s important to know the basics of reading financial statements and tracking your company’s progress so you can avoid making this mistake.” ~ Syed Balkhi, WPB Beginner

Image: Depositphotos

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