5 Accounting Mistakes Small Businesses Make

In working with businesses for decades, I have observed dozens of accounting mistakes.  Here are the accounting mistakes I believe decrease the business value and owner’s income most.

1. Waiting until year end to record accounting transactions

You only need financial statements to give to your CPA at tax time, right?  Many business owners think creating a “close-enough” P&L at the end of the year is just one more demand on an already-overloaded schedule.  If they didn’t have to “give Caesar his due”, it would never have to be done.  That is one way to look at it.  However, waiting has a price—and it can be a big one.  What if you, the business owner, had vital real-time information you used to develop strategies and make decisions throughout the year. Decisions which could make the difference in earning a profit or losing money—or even going out of business.  I believe the numbers have a story to tell.  Knowing your company’s story could determine whether your business is written as a success story or a failed case study in a business book.

2. Keeping unpresentable books

accounting mistakes cause loan rejectionYour business is doing well.  You are making money.  In fact, you are doing so well you feel it is time to expand.  Do you have a set of presentable financial statements that accurately and professionally represent a thriving, successful business?  You understand “the story your numbers are telling”, but will it be obvious to a bank or third-party?  If you wait until you are asked for these documents, it may be too late—especially if you are asked to provide multiple years of financials and tax returns.

3. Paying too little in taxes

“How is this a problem?”, you say.  Maximizing deductions and showing a minimal profit is great on April 15th, but will there be enough income to justify that $2,000,000 loan from the bank?  What helps with one hurts the other.  Perhaps it is just a matter of preparing GAAP financials and showing a book-to-tax difference on the tax return.  Waiting until you apply for the loan may be too late.

4. Equating profit with cash

How does a business making money go out of business?  Have you ever been surprised by a sudden lack of cash?  If you don’t track cash as well as profit, you may suddenly find yourself in a cash crunch.  There are several reasons why a profitable business can be short on cash.  Emerick’s cash management tools help identify potential cash shortages before your bank balance turns negative.

5. Focusing too little on profit

accounting mistakes impact your business profitsDo you own your business, or does your business own you?  You probably did not start a business so you could work 60+ hours per week and make less than you would earn at a 40-hour-per-week job that you didn’t think about the remaining waking hours.  You say there is no profit left after you pay all the normal expenses?  If you do not make profit a priority, you may never see the profit that is possible for your business.  Let us help you start small and get the business working for you.

Do any of the accounting mistakes look familiar to you?  What impact are they having on the value of your business?  Even more importantly, as a business owner, how might they be affecting your annual income and overall wealth?

If you’d like to fix any of these accounting mistakes, contact Emerick and Company.  We’d be happy to assess your situation and create a solution specific to your business needs.

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