If you go by the SBA (Small Business Association) definition of a small business being under 500 employees there are 28 million businesses in this category. However, if you look at businesses that just employ one person, a sole owner/employee combination, then you have a total of 22 million, leaving just 6 million businesses having more than one and less than five hundred employees.
With all these self-employed businesses it isn’t surprising that accounting mistakes are a big problem. The following are the most common errors that small businesses make with their accounting that can result in serious risk of not earning the profits you need to stay open past that critical first year.
- Poor expense records – most small businesses fail to take advantage of all the opportunities they have to write off small business expenses. Having a single credit card and using that for all business transactions can help, but you also make it a point to keep and itemize actual receipts to ensure you are not missing out.
- Failing to talk to an accountant – by talking to your accountant on a regular basis you can make sure that you are maximizing your tax deductions and taking advantages of tax incentives and programs that you may be eligible for.
- Doing your own taxes – many self-employed business owners assume that they can do their own business taxes just like they do their own personal taxes. The reality is if you are doing either you are probably not taking full advantage of tax deductions or failing to understand how to reduce your taxes for the upcoming year.
- Not collecting outstanding invoices – many small businesses are very lax at following up with customers and ensuring that they are paid on time and in full. If you don’t keep track of this on a weekly basis you will have much more difficulty in getting all your numbers together for tax season.
- Not investing in yourself – all small business owners should be using retirement savings accounts and tax breaks on these funds to not only help reduce their taxes but also to provide them with the funds they need for later in life.
To avoid any of these issues start working with an accountant. You can meet with him or her a few times and year and ensure you are on track for meeting your financial business goals and taking full advantage of tax incentives.