Keeping up with bookkeeping and tax obligations can cause even the best of startups to buckle under the pressure. What should be simple, straightforward processes become muddled and complicated when accounting is involved.
Cloud bookkeeping software products have solved many of the woes of the modern business owner. Manual data entry has essentially been eliminated, and most of the math has been taken out of the equation. With a great accounting solution, startups need only focus on two basic tasks: categorization and reconciliation.
Don’t make your bookkeeping more complicated by committing any of these 7 mistakes:
1. Mixing business and personal
Whether out of convenience or presumed necessity, commingling personal and business funds can be disastrous for small businesses.
Most often, the guilty parties are sole proprietors who don’t recognize the need to segregate funds. However, there are strict tax laws related to personal draws, and blended funds will raise red flags for anyone looking through your records—potential partners, purchasers, or even the IRS.
Separating spending is as easy as getting a new account from your current bank. You don’t have to do a total overhaul (yet), but having separate records will make bookkeeping and tax time run a lot smoother.
Additionally, creating a separate account for business transactions can make it easier to monitor your cash flow and change your money mindset. With this more accurate picture of your financial health, you’ll reap greater benefits from your cloud bookkeeping software.
2. Falling behind
With everything on your plate, it’s easy to neglect your books. Unfortunately, there’s a compounding effect to the difficulty of bookkeeping.
The older transactions get, the harder your accounting will be. It’s increasingly unlikely that anyone remembers what each transaction was for, meaning that you could miss out on valuable write-offs and overpay on your taxes. Procrastinating with your books will only cause you to dread doing them even more—a vicious, costly, and time-consuming cycle.
Commit to regularly maintaining your books and the task will only take a few minutes here and there rather than hours or days at a time. Put bookkeeping in the calendar. Make it part of your weekly routine (or monthly routine at least). Set an alarm on your phone. Just grit your teeth and get through it.
Bookkeeping does take time and resources, but if you can stay on top of it, bookkeeping is straightforward and easy—and it will help to inspire your financial growth.
3. Never viewing reports
Most accounting products automatically produce financial reports for you—no math involved! You just categorize transactions and let your software do the heavy lifting. So, what’s stopping you from taking advantage of those numbers?
These reports provide invaluable financial insight about your current standing. The Income Statement reflects the heart of your business, the reason you exist—to make a profit. The Balance Sheet presents a snapshot in time and reflects balanced books. The Cash Flow Statement lets you know exactly how much cash you’ve got on hand, where it came from, and where it’s going.
Regularly running and reviewing reports will empower you to intelligently analyze expenses and plan for pinch periods. Remember, the time will come when you need to seek funding. Banks and investors will be much more generous if you can demonstrate current and detailed knowledge of your financial standing.
4. Not taking advantage of integrations
Cloud accounting software provides the benefit of integrating with many of the tools you are already using. From invoicing to payroll, your bookkeeping solution should allow you to automate routine processes.
Your books hold accurate records of your expenses, so it follows that they should hold all the necessary documentation as well. Some cloud solutions integrate directly with receipt scanner apps, while others allow you to upload all relevant files to individual transactions. If you plan to take advantage of small business deductions come tax time, you better make sure you’ve got all the supporting evidence right there in your books.
5. Using the wrong accounting method
The best cloud solutions will allow you to choose between cash and accrual methods or easily change between the two. When shopping for cloud bookkeeping software, be sure to choose the solution that matches the needs of your startup.
The ability to choose between the two accounting methods is of great value to small business owners. Typical businesses (with more receivables than payables) will find that the cash method generally defers more income than the accrual method. If deferring income aligns with your tax strategy, then switching to the cash method may benefit your business.
6. Spending too little or too much
Startups must be frugal, but too much penny-pinching can actually hurt your business in the long run. Trying to do it all yourself or opting for the limited free option may not suit your business needs.
On the other hand, there’s no need to shell out money just because you’ve seen a lot of advertisements for a company. Sometimes the big name solutions aren’t able to focus on the little details that really make a difference for small business owners.
Just take the time to do your research, and you’ll find a cloud accounting solution that meets your needs and your budget.
7. Not taking advantage of the cloud
Cloud accounting software is the norm today because it addresses the financial and physical needs of small business owners. You don’t need receipts strewn across your office. You don’t need to worry about manual data entry. You need to invest in what you love by doing what you’re great at.
Take advantage of the accessibility and scope of cloud-based solutions by investing in bookkeeping software that works for you and makes you smarter.