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Want to lower your company’s risk? Focus on acing your accounting—small businesses often ignore common accounting risks that could result in major losses.
Many small businesses make common accounting mistakes that may jeopardize revenue. Your business is your job, your source of income, and your personal passion, which is why you should take every step to protect it.
The Ins and Outs of Invoices
Keeping track of your receivables ensures that you can reconcile what you are owed in an efficient fashion. Whenever you send out an invoice, be proactive by calling the client to confirm they received it. Then, follow up often to ensure timely payments. You can also consider offering an online payment system to help your clients.
The majority of company expenses may be transacted through checks and credit cards, but cash expenses happen with businesses of all sizes and types. Without the record on a credit card statement or check being cashed, you may miss a few cash expenses here and there. These small expenses add up quickly, leaving you with less capital and record of your spending. Make sure you keep receipts for every cash transaction, and think about using bookkeeping apps like FreshBooks or Wave.
Keep It Professional
Although you may be a financially savvy business owner, turning over your books to a professional accountant could save you more money in the long run. Accountants are skilled in keeping track of all expenses and tax obligations. These professionals make sure you receive tax deductions and avoid being penalized for underpaying.
Now that you’ve identified the risks, capitalize on accounting best practices:
> Decide between cash and accrual. How will you verify transactions: when they are received or when the transactions first occur?
> Keep every receipt. The IRS requires receipts for business expenses $75 or more, but it’s a good habit to save every receipt related to your business. Don’t forget about travel, gifts, meals, and even supplies for your home office.
> Satisfy tax requirements. According to the IRS, about $2.1 billion in civil penalties are filed against business owners every year.
> Go back to the drawing board. Are your methods lacking? Time to reassess. Don’t be afraid to reexamine how your company operates to find ways to maximize revenue while lowering costs.