4 Financial Mistakes Your Business Needs To Avoid

Posted on: 24 April 2020

When you are running a business, you are responsible for more than the product or service your business creates; you are also responsible for taking care of the financial side of your business. That means making sure the financial side of your business runs smoothly and doesn't encounter any avoidable mistakes that could cost you money or sideline the operations of your business.

Mistake to Avoid #1: Improper Payroll Reporting

Reporting your payroll correctly is one of the biggest financial responsibilities you have as a business owner. You need to make sure that your employees are properly classified and that you are withholding the right amount of money as required by both the federal government and the state government where you live.

When you calculate your payroll within your own bookkeeping records, you need to calculate the gross wages you pay, not the net payout.

Mistake to Avoid #2: Not Reconciling Your Balance Sheets

Second, you need to make sure that you reconcile your balance sheets on a regular basis. This is not an activity that you should wait to do until the end of the year. You should be reconciling all of your financial accounts, such as lines of credit, loans, credit cards, and bank accounts, on a monthly basis, as well as your overall financial records.

Reconciling your accounts will allow you to make sure you have not over- or underestimated your income. Reconciling your accounts will help ensure you are working with accurate financial information.

Mistake #3: Overstating Your Income

It is a common financial mistake to overstate your income, which will result in you having to pay more taxes. Overstating your income can really hamper your business's success. Overstating income can easily occur if, for example, you state the income you as an owner withdraw from the company as an expense instead of a wage.

Most overstated incomes can be traced back to not knowing how to properly handle your accounting program and not fully understanding the principles of business accounting, which is a little different than balancing your checkbook. You need to understand business accounting principles in order to accurately calculate your income for tax purposes. 

As a business owner, if you want to succeed in the long run, you need to get your finances right. In order to get your finances right, you need to work with a certified public accountant who can help you avoid all the aforementioned financial mistakes small businesses run into when they try to do their own financing. 

To learn more, contact a CPA.