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The COVID-19 outbreak has derailed small businesses, and so many are facing unprecedented challenges.
According to a Facebook Survey of 86,000 business owners, one-third of U.S. small businesses have stopped operating, while another 11% expect to fail in the next three months if COVID-19 conditions persist.
Many small business owners have applied for assistance under government programs. While waiting for the funding or closely tracking its usage according to stipulated guidelines, keeping exceptionally close tabs on the financial health of your business is fundamental to making the best possible decisions in its future. Avoiding the common, small business accounting mistakes listed below can help keep your business on track.
1. Lack of organization
Accurate accounting and bookkeeping require great organizational skills. This includes recording every transaction, and storing and digitizing receipts, for all expenditures on a timely basis. This practice helps identify accounting errors, capitalize tax deduction opportunities, and provide easy access to documentation in case of a tax audit. Disorganized and inaccurate records can leave businesses vulnerable to financial loss, delay bill payments, and cause last minute hassles during tax season. Under current circumstances, diligent recordkeeping and bookkeeping are also critical to maximizing PPP loan forgiveness. Businesses need to document qualified expenses accurately over the eight weeks. If expense tracking and recording is disorganized, the business may miss recording important transactions. Without proper documentation or qualified expense tracking, ensuring PPP loan forgiveness can become a challenge for the business.
2. Not doing the books often enough
Let’s face it, if you are a small business owner, you probably didn’t open your business so that you could do the bookkeeping. While it may feel like a chore at the end of a long day, it is important that you track your revenue and expenditures. According to the IRS, 40% of small businesses incur an average penalty of $845 each year for late or inaccurate filings and payments. But small business owners do not intentionally delay bookkeeping. They wear multiple hats and are often too busy growing the business. As a result, updating the books can fall to the bottom of the to-do list. Bookkeeping is essential to every business, and updating your books regularly, when you have pertinent details at hand, will save time in the long run. Your records must be up-to-date in case you need to seek outside funding sources. Not having organized and accurate paperwork compiled when you file (including documents such as your latest tax records and average payroll costs) may result in rejected applications or delayed loan disbursements.
3. Failing to reconcile records to your bank accounts
Bank reconciliations may be tedious, but regular monthly account reviews help identify problems before they escalate. Reviewing accounts helps stop any fraudulent activity, identify accounting errors, and spot inefficiencies. Over time, failure to review statements and accounts can distort the reality of your company’s fiscal health and even attract a tax audit.
4. Neglecting to record small transactions
It is easy to consider petty cash transactions as unimportant. However, no matter how insignificant the transaction, it is important to record it and get a receipt so your business reflects the reality of your finances. This is especially critical when you apply to maximize PPP loan forgiveness; thorough documentation of qualifying expenses is mandatory, so make sure to keep all payroll and expense records incurred by the business.
5. Not using an accounting system
The lure of immediate savings often tempts a vast majority of small business owners to manage their accounting and bookkeeping on their own. However, as your business grows, you’ll realize that not only do you have less time to devote to critical bookkeeping activities, you might also be prone to mistakes. Consider upgrading your strategy by investing in an accounting system that streamlines workflow and securely stores your financial data. Many cloud-based platforms also allow access to your business accounts real-time and from anywhere with internet access.
At Analytix, we can help you develop a strong business foundation by managing your accounting and financial functions. For more information on how we can help you, visit us at www.analytixaccounting.com or email us at email@example.com.
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