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11 Accounting Mistakes to Avoid as a Small Business Owner

As a small business owner, juggling various responsibilities is a given. From managing day-to-day operations to overseeing marketing strategies, your plate is undoubtedly full. However, amidst all these tasks, one aspect that deserves your undivided attention is accounting. Proper financial management is the cornerstone of a successful business, and avoiding common accounting mistakes can save you from unnecessary headaches down the road. In this article, we’ll explore some of the most prevalent accounting mistakes small business owners make and provide insights on how to avoid them. 

1. Mixing Personal and Business Finances

Imagine trying to untangle a ball of yarn that’s woven together with another ball of a different color. This is the visual representation of mixing personal and business finances. While it might seem convenient, it’s a recipe for disaster. Mixing the two can lead to confusion, inaccurate financial records, and even legal issues. To avoid this mistake, open a separate business bank account and use it exclusively for business-related transactions. This separation not only simplifies accounting but also presents a clear picture of your business’s financial health. 

2. Lack of Proper Record Keeping 

In the digital age, meticulous record keeping has never been easier. Neglecting this crucial aspect can result in missed deductions, errors in financial statements, and, what the IRS stresses the most, significant hurdles during tax time. Dedicate time to organize and maintain accurate financial records. Utilize accounting software to track income and expenses consistently. Not only will this streamline your financial management, but it’ll also offer invaluable insights into your business’s financial performance.

3. Neglecting Expense Tracking 

Every penny counts, especially for small businesses. Failing to track all business expenses can lead to missed tax deductions and an incomplete understanding of your company’s financial standing. Create a comprehensive system for recording and categorizing expenses. Keep receipts and bills organized, and regularly reconcile them with your financial records. This practice ensures that no deductible expense goes unnoticed and provides a clear overview of your spending patterns. 

4. Ignoring Financial Statements 

Financial statements are your business’s financial report card. Ignoring them can lead to poor decision-making due to a lack of insight into your company’s financial performance. Regularly review your income statement, balance sheet, and cash flow statement. These documents provide a snapshot of your revenue, liabilities, and cash movement. Analyzing them helps you make informed decisions, identify areas for improvement, and plan for future growth.

5. Failure to Reconcile Bank Accounts 

Unreconciled accounts are like puzzles missing critical pieces. Neglecting to reconcile bank and credit card statements with your financial records can result in discrepancies that are challenging to track down and rectify. Take time each month to reconcile your accounts, ensuring that every transaction aligns accurately. This practice not only minimizes errors but also maintains the accuracy of your financial data. 

6. Misclassifying Expenses 

Properly categorizing expenses is more than just neat organization; it’s a necessity for accurate financial reporting. Misclassifying expenses can lead to skewed insights into your business’s financial performance and potential missed tax deductions. Familiarize yourself with common expense categories and allocate each expense accurately. This practice ensures that your financial statements reflect your business’s reality. 

7. Delayed Invoicing and Collections 

Delayed invoicing and poor collections practices can wreak havoc on your cash flow. Ensure that you send out invoices promptly and follow up on overdue payments. Implement clear payment terms and policies to maintain a healthy cash flow. Consistent invoicing and diligent collections efforts help you avoid cash crunches and keep your business operations running smoothly. 

8. Tax Deadlines and Compliance 

Missing tax deadlines or failing to comply with tax regulations can result in penalties that dent your finances and disrupt your operations. Create a system to track tax deadlines and obligations throughout the year. Set reminders for filing dates and ensure that you’re up to date with any changes in tax laws that may affect your business. You can use Padgett’s tax deadline calendar as a resource

9. Inadequate Tax Planning 

Taxes are a certainty in business, but the amount you pay doesn’t have to be a surprise. Failing to set aside funds for taxes throughout the year can lead to cash flow issues when tax payments are due. Develop a tax planning strategy in consultation with a tax professional. This approach helps you manage your cash flow more effectively and prevents last-minute scrambling to cover tax bills. 

10. Cash Flow vs. Profit Misunderstanding 

Profitability and cash flow are not synonymous. A business can be profitable on paper but struggle with day-to-day expenses due to poor cash flow management. Understand the distinction between the two and develop strategies to manage both effectively. This ensures that your business remains financially stable in the long run. 

11. Seeking Professional Help 

It’s natural to want to handle everything in your business, but certain tasks, like accounting, benefit from professional expertise. Don’t hesitate to consult with accountants or financial advisors. An accountant’s insights can help you make informed financial decisions, navigate complex tax regulations, and set your business on a path to financial success. 

Avoiding these common accounting mistakes is essential for the financial health and longevity of your small business. Additionally, staying on top of tax deadlines, embracing professional advice, and managing cash flow effectively will contribute to your business’s resilience and growth. Remember, proper accounting isn’t just about numbersit’s about making informed decisions that drive your business forward. Reach out to your local Padgett office to partner with a trusted advisor today.  

8 tips to manage stress during tax time

When filing mistakes can be costly, it’s understandable that tax time can be stressful if trying to handle your finances on your own. This time of year can be especially difficult if you’re dealing with issues like Seasonal Affective Disorder, as wintry weather can add extra stress. So, how do you manage stress to stay in control now and during other stressful times?

Avoid financial surprises.

Last year, Capital One found that 73% of Americans say their finances are a major cause of anxiety. But money doesn’t have to be so stressful! While you can’t always predict a costly emergency, working with an accountant throughout the year can help you avoid many other unexpected costs, like a surprise tax bill. With a good accountant by your side, finances can be one less worry on your plate, allowing you to feel more in control of your situation.

Keep your desk or work area clean.

If you’re feeling overwhelmed, try tidying your workspace. You may find that a clean desk can be a huge boost to your productivity—up to 84%! Regularly cleaning and disinfecting commonly touched surfaces can also help you avoid getting sick.

Open and sort any physical mail.

When you get mail, open it, and consider what kind of mail it is. Is it something to do, something to delegate, something to file, or something to toss? Sort your mail accordingly. Make sure you’re holding onto any financial statements or tax documents for your accountant. Don’t forget to actually do the task or toss the junk! Even neat piles become a mess tomorrow.

Organize your email inbox.

Read your incoming emails and sort them the same way as your physical mail. If you find email notifications distracting, you can try a strategy called email batching. Instead of checking and responding to emails constantly, set aside time to respond to them in “batches.” Checking your email only a few times a day can help you manage stress and may give you more time to focus on other tasks.

Set realistic priorities.

Don’t overload yourself or commit to doing more than you’re able. Consider what you can realistically get done in your time frame. If you’ve already overcommitted, prioritize your tasks. Do what you can, and for what you can’t…

Communicate honestly and promptly.

When problems arise, let people know as early as you can if a commitment you made can’t be met. If possible, reschedule for when you will be able to meet their needs. Keeping communication open—with both your clients or customers, your staff, and your coworkers—can help avoid a lot of stress. And when you’re short on time, don’t be afraid to skip the small talk and focus on business.

Establish checklists and set procedures.

If you have standard ways of doing tasks, you may find yourself feeling less worried about things getting done correctly. Research has shown that having a routine can make it easier to manage stress. Whether it’s getting your financial system organized with an accountant, setting procedures for handling incoming tasks, or just developing daily habits for yourself, maintaining structure during stressful times can help you feel like you’re in control of your surroundings.

Don’t do it alone.   

Mental health is as nuanced and individualized as physical health, so no solution is one-size-fits-all. As with taxes, mental health is something you shouldn’t hesitate to discuss with a professional, especially if you are struggling with serious negative thoughts or intense anxiety.

If you’re feeling overworked, don’t be afraid to delegate tasks to others. That’s where Padgett can help. Finding a full-time tax and accounting partner can help take some time-consuming tasks off your plate so you can spend more time and energy on the things that matter most. Reach out to a Padgett tax professional near you today to find out how we can help get your life back in balance.

Carden of Tuscon aces the test with Padgett

Bette Jeppson’s business-ownership story began at home in 1973, when the oldest of her three children was ready to begin education, leading her to open her first Carden School in Colorado. After serving five years as director of the school, Mrs. Jeppson’s story moved to Tucson, Arizona. “People kept asking me when we would open a school on this side of town,” she said. “So, we did.” 

Mrs. Bette Jeppson, founder of Carden of Tucson, stands in front of the Carden sign

Carden of Tucson opened in 1980, teaching approximately 40 students in rented facilities. “When we first started, we were a private school, and it was difficult to keep all the finances going,” Mrs. Jeppson said. “We had to collect tuition, and I was never one for turning down children when their parents couldn’t pay. In 2000, we became a charter school, and then we just needed to keep our enrollment up.”

Today, 42 years after opening, the school serves over 130 students from kindergarten to 8th grade. As an alum of the school, Katy Martinez now works with Mrs. Jeppson as the Office Manager for the school, helping manage the business side of the school along with teaching several classes.  

“We’re a very small facility, so many of us wear a lot of hats,” Katy said. “I teach 6th grade and 8th grade math, and then I come back into the office and take care of behind-the-scenes stuff like our HR, QuickBooks, and assisting teachers and administration with things they may need.” 

As the Office Manager, Katy works closely with Carden’s accounting partners, Linda Parent and Michale Haubert of Padgett Tucson. “Linda and Michale have been really good at teaching us how to do things. They oversee what I’m doing and help show me what to do. They’ve taught me a lot!” 

Although Padgett Tucson has become a valuable partner for Carden, unfortunate circumstances prompted the school to reach out to Linda originally. 

“We had a business manager who embezzled funds back in 2010,” Katy said. “When we were going through that process, one of our board members was familiar with the original accounting firm where Linda worked. They helped with an audit of our books. After Linda left that firm, we contacted her again and followed her to Michale and Padgett Tucson.”

Katy Martinez and Bette Jeppson take a selfie together in a Carden Tucson classroom

The embezzlement was a nightmare at the time, but Mrs. Jeppson believes that it ultimately strengthened their business. “We found people like Linda to help us with the finances and get straightened out and on a better path moving forward,” she said. “That was the good thing that came out of the embezzlement—we learned a lot.” 

Now, having worked with Linda and Padgett Tucson for almost a decade, the Carden School is acing their yearly audits. 

“Our account is so intricate with it being a school, and it’s so different from a typical business,” Katy explained. “When I started 15 years ago, I knew absolutely nothing except answering the phone and filing a few papers here and there. Now, I learn something new every year. We have to do a yearly school audit, and I really appreciate that Linda and Michale are willing to show us the answers and guide us. They touch base regularly and are always willing to take our calls. Their communication is key.”

Although Mrs. Jeppson is retiring as director, she’s confident that she’s leaving the business in good hands. “It’s been very valuable to have Katy and Linda. I’m just learning to step aside and let the young ones take over! We do really appreciate Linda and her office and all the support they have given us through the years. To other business owners, I’d say find your support system and keep them!” 

Successful business owner “Profile”: Jarin Jaffee

Jarin Jaffee’s background was as an educator and administrator in private schools, but after getting involved with Profile by Sanford, he pivoted to a new way of helping people improve their lives. He joined the health and weight loss program in 2018, and in 2019, he opened the Toledo Profile location. “I lost 35 pounds, and it helped change my life, so I got involved as a business owner,” he says. “We’re now the number two Profile location in the country.”

Before opening his business, Jarin joined a Business Networking International group, where he met Tom and Amy Friedel, owners of Padgett Toledo. “I was already connected to ADP and had a bookkeeper in Nebraska through Profile, but I needed an accountant, both personal and business,” Jarin explains. “So, I started with Tom and Amy through Padgett. Eventually, I asked what it would cost to add payroll and moved that over. They’ve helped me with PPP and ERC during COVID-19, my quarterly filings, pretty much everything except bookkeeping.”

With Padgett by his side, Jarin’s Profile business quickly found success. He broke even in less than a year, in March of 2020, and maintained profitability even during the pandemic. By September, his location was in the Top 25 Profile locations nationwide before taking the first-place spot in spring 2021. Though two locations have since merged and pushed the Toledo Profile down to number 2, it remains the top-rated fitness location in Toledo and a preferred referral of many local doctors. All together, Profile Toledo members have lost about 21,000 pounds—including Tom.

“Tom actually joined our gym, and he’s one of our ten members who has lost over 100 pounds in our program,” Jarin says. “We’re proud to support him as a business owner and support his health, because as a business owner his health is not entirely his own. Tom and Amy know what I do and believe in what I do.”

In Toledo, Jarin says that relationship-based connections are key, and that makes Tom and Amy’s large network an important benefit. “He’s helped refer others to us,” Jarin says. “I’ve certainly tried to steer some people their way as well. I consider Tom and Amy a big part of our success and I’m very grateful for them. I recommend Padgett whenever I can.”

“Small business ownership is really hard, even when you’re winning,” Jarin warns. But his advice for other small business owners? “Don’t sacrifice your family and personal happiness because it ends up not being worth it. It’s important to build a team of people to support you—you need those people to help you dig out of your mistakes. Otherwise, business ownership can feel lonely.”

But between spending lots of time at home with his wife and children and working with his Padgett partners, Jarin has avoided the loneliness. “I consider Tom and Amy friends,” he says. “I love their whole staff. They’ve been very helpful beyond the typical small business accountant services.”

“The thing I value most about Padgett is the personal attention,” he adds. “I can ask Tom and Amy questions in an informal way, and they never make me feels stupid. I don’t have a background in finance or accounting, and I know I ask some ‘dumb questions’ but they never make me feel like my questions aren’t worth their time. Shelley is amazing with payroll help, answering questions from my employees. It all goes back to that level of service that’s relationship based instead of transactional.”

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