Accounting & Bookkeeping Rules, Entrepreneurs can’t afford to Foul-Up With
Posted by: Dr. Devaansh | Posted on: October 26th, 2016
As an entrepreneur, you came up with a memorable and catchy business name, and did ample market research to kick start the business with help of a seamless business plan, more than half of the task is done. So now is the time to decide on the process and put in place the accounting and bookkeeping practices in place.
The journey of business is like a roller coaster ride. If today it is up touching the skies, there might come a time when its entire glitter might vanish. But in most of the cases, it has been observed that the main reason behind a business vanishing from limelight is due to poorly maintained finances and accounts.
Entrepreneurs, CEOs, founders, co-founders and several other authorities are supposed to keep a close watch over foul-ups in the accounting or bookkeeping procedures, to avoid witnessing a phase of business hardships. Poorly managed accounts and bookkeeping inevitably will lead you to unwarranted tax audits, penalties and losses. One noteworthy thing is that this poor management of accounts is a result of poor bookkeeping, and it starts from the initial phase of your business.
What should companies or entrepreneurs do to avoid starting their business on a wrong accounting foot?
1. Personal and business bank accounts – keep them separate; come what may
Collecting your income in the personal account though seems really convenient; is not at all advisable. Mixing them up will restrain you from having a clear financial picture, personal and professional both. Also just imagine some day due to some or the other reason, if IRS steps in, how you will manage to untangle the financial history of your personal and business accounts which you are operating in a joint fashion.
At the most you would end up paying additional taxes from your hard earned money, as distinguishing business and personal expenses will not be an easy task at all, and not advisable as well, because it could lead to further complications too. Instead upon incepting the business, the first and best thing that you could do is to open up a bank account, to be used dedicatedly for business purpose. Doing business transaction through business account and vice versa, is what you should be doing without fail.
2. You don’t believe in pocketing business cash…do you?
Every single penny the business brings in should be deposited into the business bank account. Not true to its fullest, however; it remains a fact that small businesses have that tendency to pocket cash from clients; i.e., business cash. Agreed it’s your money, but taking off business cash which is not on records will undervalue your company. This will ultimately lead to low profit margin, which will become a big hurdle when you are really in need of investors, loan or additional funds. IRS guidelines is strictly against pocketing cash, as you do not pay taxes for that amount, and could lead you to penalties in case a audit takes place.
3. You need a bookkeeper and an accountant both, don’t try to cut corners
Accountants and bookkeepers play their crucial and individual roles, making both of them mandatory for your business to succeed. Accountants are not to be given importance during tax seasons as they can help you with regular financial planning and forecasting as well.
Bookkeepers are the ones who maintain the routine of your finances, and both of them together can do wonders for your business. Though what an accountant can do, a bookkeeper can’t and vice versa, their roles and responsibilities complement one another. They should be a part of the first few employees that you hire. You know your business and its requirements better than anyone else. So if you are of the opinion that hiring an accountant and a bookkeeper on board will prove costly, you can always opt to outsource your accounting and bookkeeping services to professionals equipped with software like QuickBooks and Zero.
“Now” is the answer to the question of when exactly to hire accountant and bookkeepers, and enjoy immediate benefits. None of the companies, entrepreneurs or organizations has regretted their decision to outsource and neither will you.
4. Reconcile your bank accounts; accountant & bookkeepers make it more convenient
Make it a routine to spend a couple of hours every month to sit and reconcile your bank accounts. Check out if your bank account matches the amount listed in your accounting software. Though the routine checks and balances done by the accountant and bookkeepers make it a convenient process for you, getting careless about this might lead you to unwarranted cash flow challenges and overdrawing of accounts, resulting in bank fees.
Doing accounting and bookkeeping is made easier by application and software. But this also has increased common errors like incorrect categorization of transactions and the most prominent one is doing all the accounting on their own – DIY approach.
Several of the errors are minor and not very significant, however; some are irreversible and have significant impact on the financial health of your business. Poor accounting can dilute the reality of your enterprise’s financial health. Repeated accounting mistakes and bad accounting practices will certainly lead your business to insolvency.