These 4 Money Mistakes Could Be Derailing Your Business
If
you're spending more time chasing payments or doing your own taxes than
building your business itself, that's a red flag. There is much you can
do to fix issues like these before they come back to bite you.
Accounting is a backbone of any growing business, whether that
business is a sole proprietorship or a retail store with multiple
locations.
With more than half
of new businesses failing within the first five years, it's important
that a business avoid costly mistakes that could derail operations. Here
are a few major accounting blunders your small businesses may be making
that could eventually lead to your demise.1.) Expense Lag
Cash
flow is the lifeblood of any business, with timely management of
expenses and income crucial to remaining solvent. In addition to the
many bills you pay as a business owner, you also are responsible for
efficiently reimbursing employees for all travel. Failure to pay on
those expenses quickly can eventually cause employees to leave.
But
just as your business shouldn't be late on paying expenses, your
employees should report them quickly, as well. When an employee holds
onto receipts for months and turns them all in at once, it can hit your
budget hard, especially if you set aside money each month to pay
expenses. Businesses should set a deadline for turning in expenses and
reprimand employees who delay their requests. Software like Expensify
can automate the process of submitting receipts, allowing employees to
capture information on the go and have it accessible immediately.
2.) Inadequate Billing Practices
If
your business relies on payments from clients, having a system in place
to handle billing is essential. When communications are informal and
personal, it puts you in a difficult position, since you don't want to
harm your working relationship. It's important to establish your billing
policy from the beginning, communicating the number of days allowed
before interest is charged.
Have a policy in place to address
payments that are more than 30 days late. You may wish to automate the
process using a popular accounting software solution, with emails
automatically deploying if payment hasn't been recorded by a specified
time. Be sure to include a way for them to pay easily, such as a link to
a page where they can enter payment information. If a client is
consistently more than 30 days late in paying, you may want to rethink
your relationship with that client. Your time and energy are better
spent building your business than chasing payments around.
3.) DIY Taxes
With so many accounting tools now available, it's all too easy for a business to try to do its own taxes. While software packages
can help small businesses by walking them through each step of the
process, this can be dangerous unless you have the tax expertise
necessary to know what laws apply to your business this year. You may
have a significant deduction you wouldn't have otherwise known about,
for instance, and not claiming that deduction could cost your business,
especially if you miss deductions every year.
Professional tax
accountants make it a priority to stay informed at all times. Each
year, tax laws change and professional accountants are well-aware of
those changes. They want this to be a reason why you would choose them
over doing the work yourself. By turning your business's tax accounting
over to someone who specializes in it, you'll likely save money while
also taking the burden off of yourself. In many cases, your tax preparer
will also help if you're ever subjected to an IRS audit.
4.) Failure to Background Check
Background
checks are a must, especially for employees who will be handling money
or managing your company's money. While a criminal background check
won't necessarily catch every person who might steal from your business
or mismanage funds, you'll at least be taking an extra precaution.
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