Episode•May 2, 2023•18 min

Small Business Accounting Don'ts: How To Steer Clear Of Costly Mistakes | Ep. 225

Are you a small business owner looking to tackle the complexities of accounting? Then you're in the right place! In this episode, I explore common accounting mistakes that can cost your business money. Learn to identify and avoid these costly errors with practical tips and advice. Don't let accounting mistakes be what stands between you and success - start listening now! Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany Links Accounting & Bookkeeping Article: https://moneytalkwitht.com/blog/accounting-and-bookkeeping-services/ Business Money Makeover: https://academy.moneytalkwitht.com/business-money-makeover This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

1
Accurate record-keeping is essential for small business financial health and decision-making
Failing to keep accurate records can lead to mistakes and legal trouble
Proper accounting structure allows faster business decisions by tracking metrics
Accounting enables tracking revenue, expenses, cash flow, and preparing financial statements
2
Common accounting mistakes include incorrect data entry, failure to reconcile bank statements, and ignoring tax deadlines
Incorrect data entry includes typing wrong numbers or not entering data at all
Reconciling bank statements catches gaps and errors that imported transactions might miss
Ignoring tax deadlines can result in financial penalties and having to file multiple years of taxes at once
3
Poor expense tracking leads to unaccounted funds and insufficient funds for running the business
Without tracking expenses, business owners don't know their true profit or where money is going
Accurate tracking of all transactions is necessary to understand exact financial standing
4
Accounting mistakes can result in financial penalties, damaged credit scores, legal issues, and business failure
Unpaid business bills can damage business credit scores through reporting to Dun & Bradstreet
Using personal credit as a guarantor means business issues can affect personal credit
Business failure can occur when owners don't know if they're profitable
5
Best practices include hiring professionals, using accounting software, and maintaining accurate digital records
Hire an accountant or bookkeeper if possible; if not, use accounting software instead of Excel
Accounting software automatically saves records and makes preparing reports easy
Reconcile accounts regularly and review financial statements periodically

Intro

Tiffany addresses common accounting mistakes that small business owners make and provides practical guidance on avoiding costly errors.
Tiffany is a money nerd and financial coach who hosts the Money Talk with Tiff podcast, helping listeners with business and personal finance questions.

Accounting & Bookkeeping Article Business Money Makeover Program

– Introduction to Small Business Accounting

Tiffany introduces the episode focused on common accounting mistakes for small business owners and emphasizes the importance of tracking financial health for informed decision-making.

– Why Accounting Matters for Small Businesses

Many small business owners operate without proper accounting systems, which works temporarily but eventually catches up. Proper accounting enables faster business decisions and metric tracking.

As an entrepreneur, a small business owner, you're constantly iterating, like you should be constantly trying stuff. And how do you know if something works or not if you're not keeping track of it, right?

– Common Accounting Mistakes: Data Entry and Bank Reconciliation

Mistake #1: Incorrect data entry - typing wrong numbers or not entering data at all, particularly common in Black and Brown communities where record-keeping isn't prioritized.

Mistake #2: Failure to reconcile bank statements - even with imported transactions, gaps can occur. Reconciliation involves matching bank statements with accounting program entries monthly.

– Tax Deadlines and Expense Tracking Mistakes

Mistake #3: Ignoring tax deadlines - many business owners wait until tax day to file, leading to extensions instead of having records ready. Filing early (like Tiffany does in February) prevents last-minute stress.

Mistake #4: Failing to track expenses - results in unaccounted funds and inability to determine true profitability or understand where money is going.

– Consequences of Accounting Mistakes

Financial penalties and fines from the IRS
Damaged business credit scores affecting loan eligibility
Legal issues including court judgments
Loss of credibility with vendors and suppliers
Business failure from not knowing profitability

– Best Practices for Small Business Accounting

Hire an accountant or bookkeeper if possible
Use accounting software instead of Excel for better organization and automatic saving
Keep accurate digital records that won't be lost
Track all expenses and keep receipts
Reconcile accounts regularly to identify fraud
Review financial statements (P&L, balance sheets) periodically

Resources

Topics

small business accountingbookkeeping mistakestax deadlinesfinancial record keepingbusiness creditexpense trackingQuickBooksbank reconciliationbusiness failure preventionaccounting software