So you started a business and as a solopreneur, you were many hats. One of those being the hat of the bookkeeper/accountant aka the keeper of the checkbook. What’s so bad about that…all you have to do it balance your checkbook, right? WRONG!
I’ve seen it time and time again. Entrepreneurs skipping the necessary step of hiring a bookkeeper or accountant (or accounting firm) to monitor their business finances in an effort to save money. What they don’t realize is what they save in the short term is probably costing them much more than in time, effort, and fixing mistakes in the long term (especially when its the tax preparer/CPA that is fixing those mistakes later).
Here are a few common bookkeeping & accounting errors that small business owners make when they go it alone:
Mistake No 1: Treating sales as revenue before the product or service is delivered. Why it’s a mistake: Not only is it contrary to “revenue recognition rules” (ask an accountant what that means or Google it) but..”Great sales in a month that will be delivered to the customer later…can give a company a false sense of profitability”
Mistake No. 2: Not considering the financial ramifications of a large purchase, such as equipment. Why this is a problem: Dipping into your cash reserves can have long-term consequences if you aren’t adequately covered to pay your day to day or month to month fixed expenses (or if something breaks – and something always breaks, right?) Consider taking out a short-term loan to pay for the large purchase over time or consider leasing the equipment.
Mistake No. 3: Confusing PROFITS for CASH FLOW. Why this is a problem: Business owners need to learn how to read all of their financial statements – instead of depending on one. Your Income Statement may contain several “non cash” items that my lead you to believe that you have more spending power than you really do. So it is important to read it in conjunction with your Balance Sheet and your Cash Flow Statement to get a truer picture of the financial health of your organization and evaluate what your spending power really is.
When you started your business, I’m sure you had no idea that you’d have so much to learn and so much to do. But don’t give up…just like you are good at what you do and have a passion for it, there are tons of professionals out there that are ready and able to exchange expertise with you so that you don’t have to go it alone.
Until next time… Live long and prosper. (ha…sorry, I was in a groove & that just seemed appropriate).
Don’t forget to post a comment and tell me what you think!
Related Links/Source:
Three Common Accounting Mistakes via Entrepreneur.com
