“In this world, nothing can be said to be certain, except death and taxes.”

– Benjamin Franklin

To avoid the death of your business and enjoy a hassle-free tax season, entrepreneurs need only follow good accounting practices. It’s that simple. Unfortunately, many prefer to ignore the numbers, until the day they discover that they’ve mismanaged their funds and run out of money.

This doesn’t have to be the future of your company. By being aware of the potential bookkeeping pitfalls and investing in accounting software, you can drastically increase your chances of growing a venture worth more than you imagined.

What exactly are the common mistakes business owners make?

  1. Only updating their books once a month…or less

Accounting errors and inconsistencies have this horrible habit of snowballing, unless they’re caught and corrected early. To prevent this from happening, make accounting part of your daily operations.

If you don’t have the capacity to keep track of these records yourself, delegate the task to someone who can. Or better still, invest in an online program that can instantly process each transaction with incredible accuracy.

When you know what drives the most sales and where you’re spending more than necessary, you can adjust your marketing and manufacturing strategies with well-informed decisions.

  1. Drawing up sums without really understanding their purpose

Before you can begin recording transactions and calculating your venture’s net worth, you have to learn the fundamentals of bookkeeping. Do you know which documents are needed for your business and how to fill them in? And can you tell the difference between an income statement and balance sheet?

Here, a little research goes a long way. And once you have a good grasp of the terms and rules, interpreting your findings is easy. Fortunately, helpful tutorials and online support come standard with excellent software programs.

  1. Thinking that sales equal profit

Did you know that it’s possible to make lots of money and still go bankrupt? To avoid this, you need to know the difference between two important terms:

  • Cash flow – the funds transferred in and out of your business
  • Profit – what sales revenue you have left after paying your company’s expenses

Your aim should be to avoid offering credit services and get paid by customers as early as possible, e.g. by offering subscriptions. Conversely, you want to try and refund your business’s creditors as late as possible. If you don’t, your tills may reflect sales, while your books show you’re spending more than you’re earning.

  1. Using a personal bank account for the business

It’s always better to separate your company and home finances. This ensures that you record accurate data on your venture’s successes and sales patterns. It can also help you make financial decisions that add value to your work, instead of being a burden on your pocket.

But once you do this, avoid using company funds for personal spending. Of course you deserve to benefit from the profits you earn. It’s simply better business to do so through a monthly salary than ad hoc transactions.

  1. Not managing their expense records

Have you ever looked over your account statement and found records of purchases you can’t remember making? Or worse still, found yourself unable to explain why your bank balance is so low? This could spell disaster during tax season, especially if you can’t accurately report on your expenses in an audit.

Receipts are often the culprit. So you have to get in the habit of saving each till slip you get. Yes, your bank keeps track of your electronic transactions, but no one monitors your cash payments.

You can make archiving receipts easy by taking a photo of them with your cellphone and reviewing each once a week.

A Smarter Way to Run Your Business

Cloud accounting software, like QuickBooks Online, makes bookkeeping tasks easier and faster to complete. The programs also significantly decrease the number of mistakes you can make.

How? By keeping track of your debtors and creditors, allowing you to attach receipts to transactions via a mobile app, and creating automatic reports. Best of all, you have unlimited access to these features and more, with bank-level security, from any device with internet connectivity.

So take advantage of the technology available, and don’t let accounting pitfalls be the downfall of your business.