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Top 5 Small Business Accounting Mistakes (and how to avoid them)

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by Charlie WIlson

Published by XU magazine

 

Accounting is one of the biggest challenges for small business owners, so it’s no surprise that 40% cite bookkeeping and taxes as the worst part of owning a business. Yet, there are so many reasons to keep your books in order – from knowing your cash flow to satisfying a potential audit, the reasons for staying organized and maintaining thorough records are innumerable.
Here are five of the most common small business accounting mistakes we see and some tips to help avoid them…

 

Avoiding bank statement reconciliation

You have a to-do list that’s running off the page and it’s easy to let things slip by, but by reconciling your bank account on a monthly basis, you will stem a slew of headaches down the road. If finding time is an issue, schedule a one-on-one with your bank statement by picking a date that’s just after you receive your monthly statement. You’ll be able to reconcile discrepancies quickly, detect any overcharges if they happen and avoid important lapses of data collection.

Bonus: Commerce Sync offers automatic reconciliation for Stripe and Xero users by pairing bank feeds with transfers in your ledger.

 

Using a shoebox to file receipts

If your business receipts are piling up in an old Zappos box under your desk, it’s time to find a new process. Set aside 15 minutes each week to organize your receipts and answer the questions ‘when, where, what and why.’ If there is a ‘who’ – like the names of people you wined and dined at the local steakhouse – make a note of those as well. At the end of the year, you’ll thank yourself for not having to recall all of the specific details.

Tracking expenses on a regular basis – and this goes for nearly all aspects of accounting – will give you a firm grasp of your cash flow and a much calmer state of mind.

Bonus: Commerce Sync can transfer your sales information into Xero each day to help you eliminate manual data entry and save time.

 

Not knowing the difference between cash flow and profits

Cash flow is the total amount of money being transferred in and out of your business from activities such as sales, investments, operating expenses and debt payments. Profit is what remains from sales revenue after your business expenses are subtracted. By keeping track of money you are spending versus what’s coming in you can get a clear picture of the financial health of your business and be aware of potential problems that might be lurking around the corner.

Bonus: Commerce Sync lets you transfer sales information by category. With greater visibility into what is selling and when, you can better manage cash flow by maintaining tight control of your inventory.

 

Co-mingling personal and business accounts

If you’re not already using a separate account for business and personal spending, now is the time to start. Shop around for a business bank account that suits your needs and don’t forget to look at credit unions. Ask your banker about potential fees and complimentary savings account bundles. If you change accounts, be sure business spending (such as automated payments) and deposit processes (POS systems) are updated and linked.

Bonus: Even if you haven’t been keeping clean separation between business and personal accounts, Commerce Sync ensures your business sales are cleanly accounted for in Xero.

 

Not learning how to use your accounting software

Keep a finger on the pulse of your business by learning how to use all of the functionality that Xero offers – plus don’t forget to take advantage of their rich online resources and small business guides as well. If creating statements and running reports isn’t your cup of tea, consider hiring an accountant who works with other small businesses and specializes in your type of business. Not only can a professional save you time, but they can help you avoid costly mistakes, find valuable deductions, and then – most importantly – help you understand how your business can grow.

Bonus: Xero has certified accountants, bookkeepers and advisors to help you figure it all out.

Although keeping your finances in order can take a little extra time each week, your diligence will be rewarded. You’ll have strategic knowledge of your finances and be able to make sound decisions. Plus, you won’t pay your accountant overtime to sort through boxes of receipts and decipher spreadsheets at tax time. (Believe me, your accountant doesn’t want this either!)

For business owners who need more time in their day, utilizing a service like Commerce Sync is a great start. Commerce Sync automatically transfers daily sales information from Clover, Square and Stripe, eliminating spreadsheets and manual data entry and giving you the ability to quickly and accurately look at your sales information in Xero. Plus, you can try Commerce Sync risk free for 30- days to make sure it works for your unique business.

By taking steps to avoid these common mistakes, you’ll be well on your way to running a tight financial ship and growing your business.

 

If you have any questions or need help with your bookkeeping, please feel free to contact us.

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