Many small business owners often opt to do their own accounting in effort to save money. Unfortunately, a lack of accounting and bookkeeping expertise can cost them a lot in profitability and success. There are three common accounting mistakes of which most of the small business owners may not be aware. Understanding the struggles they have with their accounting & bookkeeping everyday matters is the first step to serving them better, we believe.
1. Treating sales as revenue before product or service is delivered.
Until the service is complete, don’t count payments as income! Great sales in a month that will be delivered to the customer later, but are improperly posted as revenue for the current period, can give a company a false sense of profitability.
2. Not considering the financial ramifications of a large purchase.
Many small businesses invest in costly equipment that can impact their business significantly, for good and bad. When costly items are purchased using cash, business owners can depreciate the equipment over time, however, they are unable to claim them as a one-time expense on their taxes. When taxes are due, these individuals are unable to claim the expense to offset profits requiring a larger tax payment. One possibility is to secure a short-term loan in order to purchase big-ticket items, a method which doesn’t deplete cash flow.
3. Confusing profits for cash flow.
Many businesses mistakenly reinvest earnings back into their business, leaving them little to no cash flow. To combat this tendency, we would advise: Always track what you’re spending versus selling—and take a long, hard look at your financials before moving ahead with expansion plans that would put your business too far into debt.
Sb Accounting & Consulting is a full-service financial provider competent of helping small, medium and big businesses succeed. We promise we will take our time to fully understand your business, operations and accounting needs and afterwards we will be there for you – helping you grow and prosper.