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According the U.S. Small Business Administration, about half of all new small businesses who launch will fail within the first five years. As a small business owner, you never want your business to fail. A very important tactic used to avoid business failure is to practice responsible financial management.
Becoming financially responsible will allow your business to thrive. In order to get to this point, small business owners should always avoid the following bookkeeping mistakes.
• Cash versus accrual accounting are two separate types of accounting. Many small business owners fail by using the wrong method. Cash accounting can be used in the beginning of a business’s life; however, once the business grows and becomes more complex, they should switch to accrual.
• Another mistake made by small business owners is having the same accounts for business and personal finances. As soon as a business begins, there should be separate accounts and all of the businesses income should be deposited into a business checking account.
• Classifying your employees into the wrong categories can be very costly, especially in the eyes of the IRS. Specify the difference between full-time, part-time, and temporary employees, additionally independent works, freelancer and consultants.
• When business owners do not reconcile their accounts—it can be very detrimental. Account reconciliation should be performed on a monthly basis.
• Being informal when it comes to petty cash. Keep a simple accounting system for your petty cash to avoid accounting errors.
These are just a few of the many ways that small business owners can stay up-to-date with their accounting practices. Practicing responsible financial management is very important to the stability of a business. Make sure your business is following the above tips so that you can strive as a business for a long time.
Also, remember that a great business insurance policy is key to keeping your business financially stable in the event of a loss. Let any of our agents set you up with a commercial insurance package that will satisfy all of your insurance needs.