In This Article
Are you a small business owner looking to tackle the complexities of accounting? Then you’re in the right place! In this episode, I explore common small business accounting mistakes that can cost your business money.
Learn to identify and avoid these costly errors with practical tips and advice. Don’t let accounting mistakes be what stands between you and success – start listening now!
Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany
Links From The Episode
Accounting & Bookkeeping Article: https://moneytalkwitht.com/blog/accounting-and-bookkeeping-services/
Business Money Makeover: https://academy.moneytalkwitht.com/business-money-makeover
Intro/Outro: You know what it is. That’s right. It’s time to talk money with your money nerd and financial coach. Now tighten those purse strings and open those ears. It’s the Money Talk with Tiff podcast.
Tiffany Grant: Hey, hey, hey. This is another episode of Tiffany’s Take where I answer your many questions. If you want your question answered on the podcast, go to www.moneytalkwitht.com/tiffany, and I’ll be more than happy to answer on the podcast.
So for today’s episode, I wanted to go over some common accounting mistakes for small businesses. Now, if you’ve been listening to the podcast for some time, You know that I talk a lot about business. Um, there’s been plenty of ideas out there, and if you haven’t started a small business or a side hustle or on some entrepreneurial journey, definitely go back and listen to.
Some of my previous episodes because I’ve talked to all types of people doing all types of things, and I’m sure that you’ll be able to find something that you enjoy. And even if you decide that you know what, owning a business is not for me, is nothing wrong with having a little side hustle. So that’s why I wanted to go ahead and.
Talk about some accounting mistakes that you could make at as a small business owner. Now, I wanna go ahead and preface this by saying it’s super important for you, actually crucial, uh, for you to keep track of your financial health when it comes to your business because it allows you to make some informed decisions and also stay organized.
So failing to keep those accurate records can lead to a lot of mistakes. Um, trust me, I know, uh, financial penalties and even legal trouble. So it’s important to do these things. You know, how many small business owners, entrepreneurs, do you know where? They just go do their thing. Maybe they’re a plumber, electrician, a coach or whatever, and they’re like, oh, I’m able to pay all my business bills.
I’m good. You know, that type of thing. And really don’t have an accounting system together. It, it works for a little while, I’ll be honest. It’ll work for a little while, but after a while it will catch up to you and also. Having the proper accounting structure in place will allow you to make, um, business decisions faster.
I will argue, um, because you’re able to see, as an entrepreneur, a small business owner, you’re constantly iterating, like you should be constantly trying stuff. And how do you know if something works or not if you’re not keeping track of it, right? So this is a way that you can, um, track your metrics. You can track different things just by using accounting.
So speaking of tracking, uh, having an accountant allows you to track your revenue and expenses, monitor your cash flow. A k a budget. I didn’t say that though. Um, prepare financial statements, making foreign business decisions and reduce the risk of fraudulent financial activities. Now, I have seen in some situations where people.
Have worked well, people have hired people and they were able to get over on them because they didn’t have their books in order. So it’s super important to make sure y’all have this together. Guys, I can’t keep saying that enough. So anyway, now that we have that baseline, what are some common accounting mistakes that small businesses make?
Well, from what I’ve seen, um, first and foremost, incorrect data entry. So, Messing up and typing a four when it should be a two, or, you know, so on and so forth. Or just not even typing in anything at all. Like not even having, not even entering that data, um, has. Has been an issue that I’ve seen with a lot of small business owners, and especially in the black and brown community, because we feel like, you know, oh, I can go out here and do this thing, make some money, whatever, and keeping up with it is not important.
You could see that by how many people got upset with the whole Cash app and um, you know, them wanting to report to the government, what have you, you know, as a business owner that uses Cash App. I was like, oh, that’s fine, because that’s what you’re supposed to do anyway. Um, so you know, this is something that we do need to get a handle on.
Um, number two, I would say is the failure to reconcile your bank statements. So just putting the information in, doing the data entry part, you know, tracking all your expenses and your income and all that stuff in the program is fine and dandy, but if you’re not going back and reconciling it, Against your bank statements.
Then there’s opportunities for gaps. There’s opportunities for errors. There’s opportunities for issues, and so you definitely wanna go back and make sure that even if, because I use QuickBooks, they import all your transactions and everything. But even with that, there could be a situation where a transaction didn’t get imported.
Now, how are you gonna catch that? The only way to catch that is if you go back and reconcile against your bank. Statements. So what does reconciling mean? That means you’re taking your bank statements side by side with your accounting program. I’ll just use QuickBooks cause that’s what I use. So I’ll use that for my examples.
Um, and you’re just matching up the transactions. So each month at least you should be doing this. So, you know, you’ll get your, let’s say, What month are we in May transactions, and you get your May bank statements and you’re just matching them up. So that’s reconciling your bank statements. If they both match up and everything checks out, they balance, they’re equal.
You’re good to go, you know you have everything in there. If they don’t balance out, then you know that there’s something missing, and so you have to go back and see what that is. So it’s super important to go back and do those things as well, not just inputting the information. Um, I would say number three is ignoring the tax deadlines.
Okay. We just passed tax season and when I say there was a lot of people reaching out to me like, Ooh, Tiffany, um, you know, it’s tax day and I didn’t find my taxes. How do I do an extension? You know, all that, all that type of, um, it’s cool that they knew that it was tax day, but. Now you’re at a situation where you have to file an extension when if you would’ve had everything together, you could have just went ahead and filed your taxes.
Personally, I filed my taxes back in like February, like I was ready to go. Okay. Um, because at the end of. At the end of the year, all I have to do is just go back and make sure everything checks out like I was doing throughout the year, and now I have all the information I need to go ahead and file my taxes.
So I think the only thing I was waiting for at the beginning of the year was like, you know, when I work at, um, The local university, I was waiting for my, uh, tax information from them. Other than that, I could have went ahead and filed, you know, so ignoring tax deadlines is huge and failing to pay those taxes on time, uh, can result in financial penalties, fines.
Uncle Sam is gonna get their money. The IRS is going to get their money. So it’s important that you keep up with that stuff and it’s only your responsibility. So you know they’re not gonna come to you and be like, oh, you didn’t pay us taxes for the past five years. They’re not gonna say that when it’s time for you to file tax.
Well, I’m not gonna say they’re not gonna say that. Sometimes they do, but because you, you know, you read the headlines about tax evasion and stuff, but for the normal, regular person, They typically don’t reach out to you about that, but it’s important for you to go ahead and do that because if the time comes and let’s say A, you need that tax return because you’re trying to qualify for a grant or a loan or what have you, or B, you go ahead and say, you know what?
I’m gonna go ahead and file my taxes. This is the first time I filed as a business, and you’ve been in business for 3, 4, 5 years now you have to go back and do all those taxes too. So all of that to say it’s important to just. Keep up with your tax deadlines and make sure that you are following your taxes on time and making sure they’re accurate.
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You manage your business. So join our next cohort starting on May 21st, but don’t wait too long to sign up. As this is our only live cohort for a while, I will be starting a PhD program in the fall, and so this will be my last hoorah for the year. So to make things even better, I also have special pricing that ends on May 7th.
So stop letting your finances run the show and take control today. Hurry up and sign up. For the Business Money Makeover program, before it’s too late, just go to www.moneytalkwitht.com/business Money makeover. I’ll be happy to have you on board and I look forward to seeing you now. Back to the episode.
Um, number four, it’ll go, it kind of goes with number one, but that’s failing to track your expenses at all. Uh, poor expense tracking results in unaccounted funds leading to insufficient funds for running the business. So what do I mean by that? And that’s a, that’s a word right there. Y’all could pause it.
Rewind it. That’s a word. What does that mean? That means that you’re not tracking everything that you’re spending on, so then you don’t know really how much profit you’re making. You don’t know really how many, how much expenses you have. You just know that you’re, you know, maybe making it month to month as a business owner or what have you, but not really understanding.
Where is all your money going? And so failing to track your expenses or poor expense tracking, um, is a common mistake that I see small business owners make. It’s important to be extremely accurate with all your transactions, what’s coming in and going out, so that way you know exactly where you stand.
Now, what are some potential consequences of these accounting mistakes? Financial penalties or fines? Like I said before, damage credit scores leading to difficulty in obtaining loans. Um, your business does have its own credit score, and so if you have credit for your business, let’s say you’re on like a net.
30, net 60, net 90 or whatever, you know, payment plan and you don’t pay. Then they can report to Dunning Bradstreet, which is who does, um, business credit for the most part. They can report to them and your business credit score will go down making it harder. It’s just like your personal credit score. So you definitely wanna keep that stuff in track.
You know, hearing people all the time saying, Ooh, I’m gonna buy this in my business. I’m gonna buy this in my business. I’m gonna buy this in my business. Yeah, that’s cool. But realize if you miss those payments, your business could be affected. Now, if you don’t care about your business, then you know that’s on you.
It’s not my advice that’s on you. Um, but if you do care about your business and you’re taking this seriously, even if you get assets in your business name, you still have to pay those bills. Okay? That’s all of that to say that, um, make sure you pay your bills because it can damage your credit score. Now, in some instances, You have to use your personal credit in order to get your business credit, especially when you’re first starting out.
They’re gonna wanna check your personal credit as well. And so if you get an asset with your business, but you had to sign as, um, guarantor, then now it affects your personal credit too. So keep that in mind. So legal issues, um, is another thing that could lead to court cases. They can file a judgment against you and or your business.
So keep that in mind as well. Um, lack of credibility with vendors and suppliers. Same thing with your personal credit. If you don’t do a company right, you don’t pay them back. They can report that and now you look bad to anybody else that would want to do business with you. And last but not least, certainly not least, is.
Business failure. Um, at the end of the day, if you’re not keeping track, if you’re not doing your accounting and all this stuff, you, your business could fail because you don’t know what’s going on. You don’t even know if you’re profitable. You could be running a business where it is not even making a profit.
Then you need to decide, is there something that I even wanna do? Right? So it’s important to do all this stuff. So I know this sound, it all do me and gloomy and stuff, so I wanna give you some best practices as a business owner. So number one, hire an accountant if you can. If the entrepreneur’s not an accountant, it’s best to hire one.
If you can’t hire one right now, at least get a bookkeeper maybe. Um, and I have an article on my site where I talk about the difference between a, a bookkeeper and an accountant. So go check that out. I’ll make sure I have it in the show notes. But it is best if this is not your thing to hire a professional.
Um, if you can’t afford a professional right now, use accounting software. I mean, I know some business owners personally that use Excel and all that stuff, and that’s fine. But accounting software is made for accounting and it can help you find those gaps. It can help you make sure everything is organized.
It asks the right questions. You know, Excel’s not gonna ask you any questions. And so, It’s important to. Um, use some accounting software. Uh, it also, using the software also, uh, makes it easy to prepare reports. And so if somebody asks you for your profit and loss statement or somebody asks you for your balance sheet, I.
Or somebody asks you for your cash flow statement, all you have to do in the system is click a couple of buttons and it’s there and you have it and you can send it on its way. So that’s why I highly recommend if you don’t have an accountant, you don’t have a bookkeeper, and you wanna keep track of this stuff yourself, to use accounting software and not just Excel or a paper pen, what have you.
And that goes to my third point, and that’s to keep accurate records. So with accounting software, it allows you to more accurately keep records because it’s digital. If you do it in on like a piece of paper and with with a pen, then. You could lose that, you know, that’s something that could easily be lost.
And then all of your data is, is lost. Or let’s say you’re in Excel and the system, uh, your computer does an update or something when you are in the middle of doing your stuff, if you didn’t save it, it’s gone. It’s gone forever. If you use accounting software and especially the online versions that they have now, it automatically saves as you go without you even have to thinking about it.
So highly recommend. Another best practice is to track your expenses. I mean, I’ve said this all throughout, so if you don’t get it by now, track your expenses as a business owner. Uh, set up a system for tracking your spending and keep your receipts. Um, even QuickBooks, they allow you, and this is not sponsored by QuickBooks in any way, I just use it.
Um, but QuickBooks, if you’re listening, holler at you girl. But, uh, So on QuickBooks you can actually take a picture of your receipt and keep it in the system as well. So that way you have everything you need come tax time, um, or if you ever get audited or anything. Uh, like I said before, you wanna reconcile your account regularly, so this helps in identifying fraudulent activities and also helps you keep accurate financial records.
And then last but not least, you wanna review your report statements regularly. So like I said before, your profit and loss statement, your balance sheets, all of that stuff should be reviewed periodically so that way you under. Understand the health of your business, the financial health of your business.
So hopefully this episode helped you, small business owners out there that listened to me, um, kind of start thinking about your accounting, some best practices and some mistakes to avoid. If you want your question answered on the podcast, just go to money talk with t.com/tiffany, and I’ll be more than happy to answer.
I hope this was helpful. I’d love to hear from you if it was, um, please let me know any accounting mistakes you’ve made before. Um, and I look forward to hearing from you soon. Bye. Thank you
Intro/Outro: for listening, joining and being a part of the Money Talkative podcast this week. You can check Tip Out every Thursday for a New Money Talk podcast, but if you just can’t wait until next week, you can listen to previous.
Podcast episodes at Money Talk with t.com or follow TIFF on all social media platforms at Money Talk with T until next time. Spend wise, by spending less than you make a word to the money wise is always sufficient.
In this episode of Money Talk With Tiff, we explored common small business accounting mistakes that can have significant consequences. Regardless of whether you’re a seasoned business owner or just starting, this insightful episode shares practical tips and advice on how to identify and avoid these costly errors.
Key Takeaways From The Episode
- Hiring an accountant is recommended for small businesses, but if not possible, use accounting software.
- Incorrect data entry, failure to reconcile bank statements, and ignoring tax deadlines can lead to financial penalties and legal trouble.
- Poor expense tracking may lead to insufficient funds for running the business.
- Track expenses and set up a system for tracking spending while keeping receipts to ensure accuracy.
Hiring an Accountant or Using Accounting Software
Though hiring an accountant is the ideal choice for keeping your finances in check, not every small business can afford one. In this case, utilizing accounting software can offer similar benefits. These tools provide automation and accuracy to simplify the accounting process.
- Accountants can provide guidance and expertise
- Choose a reputable accountant with experience in your specific industry
- Accounting software simplifies the process
- Research and pick the most suitable software for your business needs
Common Small Business Accounting Mistakes
Incorrect Data Entry and Failure to Reconcile Bank Statements
- Manual data entry leaves room for errors
- Double-check your entries and regularly reconcile your accounts
- Bank reconciliation ensures accuracy
- Compare your internal records with your bank statements to catch discrepancies
Ignoring Tax Deadlines
- Missing tax deadlines can result in hefty fines and penalties
- Keep track of all tax deadlines and set reminders to avoid missing them
- Seek advice from professionals or use tax software to ensure accurate tax filings
Poor Expense Tracking
- Inaccurate expense tracking can lead to insufficient funds for running the business
- Keep track of every expense, no matter how small
- Implement a system for tracking spending
- Utilize budgeting and expense tracking software or tools
Tips for Improving Your Small Business Accounting
- Keep personal and business finances separate
- Maintain accurate records of invoices and payments
- Set up a budget and stick to it
- Regularly review financial statements, such as profit and loss statements, balance sheets, and cash flow projections
Engage and Learn More
Did you find this blog post helpful? Don’t miss out on the full episode of Money Talk with Tiff above. Tune in and join the conversation about managing your business finances, avoiding mistakes, and ensuring success.
Also, be sure to subscribe to our podcast and share your thoughts. We’d love to hear about your experiences in managing small business accounting!