Business 101: 5 Common Accounting Mistakes

Around this time of year, when businesses are pulling their year-end info together for tax prep, is when the most common business mistakes start showing up. This post covers the five most common accounting related items we cover with our clients. While there isn’t time to correct any of these mistakes for the prior year (sic: 2014), there is plenty of time to incorporate them into this new tax year. Demand a change to stop the insanity that happens during tax time by implementing the following five actions.

Treat Your Business Like a Business
There is no more mixing personal and business. Set-up a business checking account and get a business credit card.

No one is perfect and occasionally personal funds will be used or invested; no shame, no big deal. Just make sure you record it in your accounting tool through a reimbursement to yourself, or set-up a payable that you can track. At the end of the year, take time to review your personal activity to make sure nothing was overlooked. It is well worth the time, and who knows – you may just find some tax savings.

[tweetthis]By separating business activities into their own accounts you SIMPLIFY your recordkeeping.[/tweetthis]

**ADI Pro Tip: While you are setting up your business accounts, apply for a federal ID number for your business. This will cut down on possible identity theft related to business activity. Here is a link to the IRS form SS-4 that you will need (link is the form + instructions).

As always, if you have questions, please connect with your tax professional for clarification.

Knowledge is power! (and yeah, it includes knowing and recording the small stuff) One of the most common mistakes we come across is avoidance when it comes to finances, both business and personal. To eliminate the avoidance that creeps up will require changes to your habit and mindset. Setting time to work ON your business rather than IN it is the first step. Being intentional with your funds and setting aside funds to pay yourself, tax savings, and creating a having account to support your business, is the next step.

To be intentional you need to have a clear picture of what your business is producing, spending, and the resulting cash flow. That is where the avoidance kicks in: no it isn’t much fun “doing” the data entry or record-keeping of your business finances. Opting to move to the cloud and incorporate a browser-based accounting tool will automate your record-keeping. By automating this process it will create a clear finance map to help you be strategic about using your profit. We recommend QuickBooks Online or Xero Online Accounting.

Set up time to work ON your business, be intentional, automate your record-keeping, and demand a clear financial map!

Track your mileage
It might be small; it probably is a pain in the butt; and you may not feel that it is worthwhile. Without tracking you are literally leaving money on the table. Here is a blog post we wrote about auto expense for more info. Then get to your nearest office supply store and pick-up a simple auto tracking log like this one you can find at Office Max or buy a simple pad of paper next time you are at the grocery store. NO excuses! Just DO IT!

Embrace the Receipt – choose paper or virtual
Receipts are GOLD! Your credit card or bank statement are NOT enough. During an IRS audit they will only accept your receipts. Bookkeepers love their paper, but that may not be true for you. The key to this fix is to find what is true for you and work the process. Are you technology savvy and love your smart phone? Maybe you love paper, like me. Choose one and do the basics – this system works in the virtual world just like it does in the physical:

1. Create file folder(s) – you don’t have to be an organizing expert, choose which option makes the most sense to you. Consider, if I needed to find a receipt to return a purchase, where would I look first and how many receipts would I want to search through? HINT – sometimes the answer is that YOU aren’t the one to find the receipt; that means it might be time for a new hire or outsourcing.

a. Basic – one folder for each year
b. Intermediate – one folder for each month
c. Advanced – create a folder for each vendor/bank etc; the plus for this option is it is super EASY to find receipts when you need them.

2. Process the receipts and enter the activity into your accounting tool, remember knowledge is power and paying attention to where you are spending your money is a key step.

a. BONUS: if you use a browser based solution like QBO or Xero, you can actually attach the receipt to the transaction, making it easier to find it when you need it AND you entire financial team will have access. GREAT for tax communications.

3. Put the receipts AWAY. There is a direct correlation between how high your receipt pile is and how much avoidance you are practicing.

4. Rinse and repeat.

5. Keep your activity together by year, so each year set-up new folders. For IRS audit purpose you will need to keep your receipts for 7 years.

Remember: During an IRS audit they will only accept your receipts –  so all your receipts are GOLD! Get your system on lockdown for 2015.ADI Pro Tip

**ADI Pro Tip: It is all about creating a habit that makes your business a priority. Intentionally choose to work on your business once per week.  If this is a new concept start with 2-3 hours once per week.  As this becomes easier you can use an entire day and include other items like marketing, networking, sales calls, or planning. HERE is our blog post with more info on this.

Educate Yourself

We are talking tax know-how – stop avoiding and get in the know about what tax benefits you have available to you.  Ask questions and if your tax professional won’t give you the time of day then find yourself a new provider that WILL.  Not all tax professional offer consulting and education, so waiting and expecting that yours will offer that up on a golden platter is just not going to happen IF you don’t ASK for it.

The number one mistake we encounter with business owners in this area is that they wait until tax season (February – April) to corner their tax professional, ask questions, and get advice.  That may work in February but if you are trying to pin them down in March or April, you run a high likelihood of being ignored or getting a quick/short answer to your question. The best option is to schedule an appointment mid-year or September – November and get a tax projection or a tax planning session.  Perhaps even include your Financial Advisor and create a plan to maximize the use of your profits by decreasing the amount being paid in tax.

Ask questions! If your tax professional won’t give you the time of day then find yourself a new provider that WILL.

Here are a few items to consider:

  1. It could be embracing home office deduction, which is now simple to calculate and we wrote a post about it HERE.
  2. It could be your tax entity. Would it be better if you were a S Corp or a single member LLC?
  3. Is there benefit in buying a second car for your business?
  4. How does a retirement plan benefit your tax situation?

**ADI Pro Tip: We often will see avoidance in this area because business owners are afraid of audit.  This is why we recommend using a professional tax preparer.  STOP doing your own tax processing, regardless if the software you are using is “easy”.  Dave Ramsey has a great post on this very subject that you can find HERE.

As you can tell from this post, when I look at bookkeeping for a business it just isn’t about the numbers.  Average bookkeepers look at numbers, and the majority of them do a good job at keeping your books current and reconciled.  Extraordinary bookkeepers look at the whole (big!) picture and health of a business.  The items listed above are the items required to create a strong healthy foundation for a profitable business.  If you need assistance in establishing this foundation then its time to get a little support.  Ask your tax professional.  Check in and find a business coach.  Or look at outsourcing to a bookkeeping team that sees the whole picture.

[tweetthis]Do you have an EXTRAordinary bookkeeper? The health and wealth of your business deserves top notch partners, doesn’t it?[/tweetthis]

  In celebration of the Chinese New Year, the ADI Accounting Team wishes you much wealth!

Chinese New Year

If you’re in the market for an extraordinary team, feel free to drop us a line. We’ll be happy to connect with you !

Leave a Reply

3 × two =

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Show Buttons
Hide Buttons