Whether you are a new or growing business, you cannot ignore the value of effective in-house accounting practices. Having an in-house accounting system available ensures you keep track of your financial transactions and cash flow.
Good in-house accounting practices can help catapult your business’ prospects. According to a 2020 research on small business owners by Forbes, 87% responded that their accountants were entrusted with giving solid business advice in various areas of their personal and business lives.
However, it’s also important to pay attention to every accounting activity as it could cause great problems for your business. Fortunately, these mistakes are easy to detect and fix.
Here are in-house accounting practices to avoid:
- Combining Personal and Business Expenses
If you want your business to grow, always separate your personal and business expenses. At first, it may not seem like a big deal, but eventually, it will mess up your financial records. As per the IRS, you cannot deduct personal expenses as business expenses. In the case of an audit, you will have a difficult time telling apart business transactions from personal transactions.
- Applying Inefficient Accounting Software
Having accounting software in place has become commonplace among businesses. However, this doesn’t necessarily spare you from experiencing errors in your records. It’s also not good to rush into buying software as it may fail to meet your company’s needs. It’s better to take your time to research first what will best suit your business needs.
- Failing to Keep Documents for up to 7 Years
The general rule of thumb is to maintain documents for 7 years. The IRS requires businesses to keep records for several years. Having documents available helps to run your business operations smoothly and be well-prepared for an inspection of your tax records by the IRS.
- Not Regularly Reconciling Your Books With Your Bank Statements
Doing a monthly reconciliation determines how much cash your business has. You will have an idea if you can cover any arising expenses or buy additional equipment. You will also prevent a case of bounced checks which can undermine your relationship with suppliers.
- Not Recording All Expenses
It’s easy to think small transactions in a business are inconsequential. But they will eventually accumulate and mess up your books. You will struggle with tracking, approving, and reimbursing them. This will lead to your financial records not showing a true picture of your financial position.
- Not Filing Taxes on Time
It can be tempting to delay filing and paying taxes for later since you are busy with other business operations. But you risk facing hefty penalties and fines if you miss the deadline. Furthermore, it will place you on the radar of the IRS if you do not submit paperwork on time.
- Not Maintaining Your Payroll Effectively
Poor management of payroll can undermine the stability of your business and the productivity of employees. Not keeping records of hours spent by employees can affect the budget allocated for compensation. Aside from disbursing accurate wages, you need to monitor if the number of employees matches the workload. It alerts you on the motivation and engagement of employees in meeting your targets.
Enough real-world accounting scandals prove that bad accounting practices can ruin a business; big or small. But other businesses continue to thrive by keeping their house in good order. As a business owner, your in-house accounting practices have a huge impact on your business, employees, and customers. For this reason, it is essential to prevent some accounting mistakes from becoming a culture in your firm. It will also give you the peace of mind to focus on other tasks that will elevate the growth and success of your business.
At DOAAR, we’re committed to helping small businesses to grow exponentially through the hurdles of business operations. We offer a wide range of services, such as tax preparation, bookkeeping, tax planning, and other financial services. You can be assured to stay on top of your in-house accounting practices. Please contact us today.