Believe it or not, even the most successful entrepreneurs often make mistakes with their accounting that could potentially leave them out of pocket or damage their company. This week we shall be discussing these mistakes made by entrepreneurs to ensure you know what to avoid with your small business.
Submitting Tax Returns Too Late is Common with Many Entrepreneurs
Many small businesses have found themselves receiving large fines and penalties as a result of late tax return submissions, with 750,000 people missing the deadline this year alone. These fines can cut quite deep into your pockets but can be easily avoided if you stay on top of your finances andthroughout the year.
Not Staying on top of The Books Year-Round
Year-end tax can be a struggle, even at the best of times, but it can be even more difficult if you find yourself scrambling to find invoices or receipts just before the deadline. This can lead to making a variety of mistakes which can be costly or can lead to late submissions and fines. Keep on top of your books throughout the year by using a specialist accountant to ensure you never fall behind.
Choosing the wrong type of company structure
When that entrepreneur lightbulb goes off in your head and you decide to set up your business and register it, there are many options you could choose, such as a limited company or a sole trader business. What you choose will determine the amount and type of taxes you will be paying, as well as other benefits and downsides.
Choosing the wrong business type can come with its pitfalls. You could find yourself paying more tax than you need, which is why it is important to involve an expert accountant to help you set up your business.
Many Entrepreneurs Calculate their Margins incorrectly
Calculating the costings and margins for your business must be done accurately. It is important to consider costs that go beyond materials. Think about the time you have spent developing the product, the costs of marketing, and even expenses such as utilities.
Calculating your margins incorrectly can result in you making much less profit than originally thought, putting your small business in a difficult financial position. This is a common mistake made by many entrepreneurs but making note of every financial detail will ensure you avoid doing the same.
Forgetting to save for your tax bill
Once you have submitted your tax return, you will receive your tax bill, something you must remember to have a budget set aside for. Put aside a cut of your earnings each month so that you are not thrown off-guard when you receive your bill. This will ensure that you are not left short or left owing money to the tax man.
Blending Personal and Business Finances
Many entrepreneurs, especially those who run a small business or are a sole trader, can easily make the mistake of blending their personal and business finances, especially considering the fact that they are investing in their own business. Keep these separate from one another to make things easier.
Poorly Managed Cash Flow
We have spoke before about the importance of keeping a healthy cash flow. If your cash flow does not reflect that you are turning a profit, you may find yourself heading for debt.
Offering Long Credit Terms to Customers
As an entrepreneur, you may be tempted to offer customers longer credit terms in order to close a sale. However, long credit terms can cause many issues with your cash flow and can be taken advantage of by customers who may be reluctant to settle invoices. This is something that should be saved for well-known, established customers.
Having no Cash Reserve
Unexpected charges and costs can push some entrepreneurs over the edge, so it is important to have an emergency cash reserve in the event of any surprise bills.
Borrowing more than you need is tempting when the bank is willing to lend you more, but this can cause financial strain in the future. If you want to swim in the smart pool of entrepreneurs, borrow only what you need.
Failing to forecast and budget
It can be difficult for many entrepreneurs to juggle priorities and choose the more important tasks. Take some time to make forecasts and budgets on a regular basis to ensure your business turns a profit. Without one, your future is unclear and may result in you losing, rather than making, money.
Not Talking to the Experts
If you, like many entrepreneurs, wish for your business to succeed, then it is important to have an expert accountant there to offer guidance and support throughout all your steps to building and managing your small business. Get in touch with Steven Glicher today to see what we can do to help your business grow.