As a business owner, having the right systems and processes in place is essential to your company’s financial health. One of the most important aspects of this is getting accounting practices correct from day one. Unfortunately, new business owners often make mistakes that can cost them time, money, and reputation. In this blog post, Zorayr Manukyan takes a look at some common accounting mistakes new business owners make so you know how to fix any issues while avoiding making these costly missteps yourself.
Zorayr Manukyan Lists Accounting Mistakes New Business Owners Often Make
1. Failing to Separate Business and Personal Funds: According to Zorayr Manukyan, one of the most common mistakes business owners make is failing to maintain a clear separation between their business and personal funds. Ideally, you should open a separate business bank account that can be used exclusively for business-related transactions, such as payroll, taxes, and invoicing. Using the same accounts for both your personal and business expenses will create confusion when it comes time to file taxes or audit financial statements.
2. Not Keeping Accurate Financial Records: It’s essential to maintain accurate financial records if you want to gain an understanding of your current cash flow situation or plan for future growth. Without detailed records tracking each transaction individually, businesses may find themselves in hot water if they’re ever audited by the IRS or other government agencies. To save time and avoid costly errors, consider investing in accounting software that can manage invoices, reconcile bank accounts, and more.
3. Not Setting Up a Budget: Creating and sticking to a budget is one of the best ways to ensure your business stays profitable. A budget allows you to track expenses, as well as anticipate upcoming income and cash flow needs. When making a budget, be sure to include all necessary items, such as payroll costs, rent/mortgage payments, taxes, and insurance premiums. Without a budget, in place it’s impossible for owners to accurately predict financial performance or know when additional funds will be needed to cover unexpected costs.
4. Not Documenting Business Transactions: Every business transaction should be documented in some way, whether it’s a purchase order, invoice, or receipt. Proper documentation allows you to keep track of expenses for tax-deduction purposes as well as provides evidence of what was purchased and how much it cost if any disputes arise with customers or vendors. Furthermore, having all of your financial records in one place makes tax season easier since everything is already organized.
5. Overlooking Tax Obligations: Business owners, as per Zorayr Manukyan, must make sure they’re meeting all of their local, state, and federal tax obligations or risk facing hefty fines and fees from the IRS. Depending on the type of business you own, you may need to register for a variety of taxes such as sales and use, payroll, or income & franchise taxes. You should also consider hiring an experienced tax advisor to ensure you don’t miss any important deadlines or overlook potential deductions. Taking the time to properly understand your tax obligations will help you avoid unnecessary headaches in the future.
Zorayr Manukyan’s Concluding Thoughts
By avoiding these common mistakes that Zorayr Manukyan mentions here and taking proactive steps like setting up a budget and documenting transactions, business owners can ensure their finances stay organized and compliant with all relevant regulations. With a system in place for tracking expenses and monitoring cash flow, businesses can focus on growing their operations instead of worrying about errors that could lead to hefty fines from the IRS.