Top 5 Accounting Mistakes Small Business Owners Make

Being able to provide services to Small Business Owners is my passion. This year, I have been fortunate to bring on new clients and provide additional services to clients that have grown. As I have gotten to know their situations, I have come to the realization that some could have benefited from my services much sooner.

Here are the top 5 preventable mistakes and situations that cost my clients extra time and money.

Starting a business is an investment. In the beginning, money can be tight. You may be slowly easing in, and let’s face it – the financial side can be confusing. But this is where money spent on a qualified accountant has the biggest potential to pay for itself sooner rather than later. Most CPAs will offer a get to know you meeting where you can interview them to see if they are a good fit for your business.

Mistake #5

Not collecting W-9s from your service vendors, therefore not having necessary information for year end filings.

Businesses who pay service providers are required to issue Form 1099s at the end of each year. Service providers can be Accountants, Attorneys, Contractors, Cleaning/Janitorial, Repairs and Maintenance, Marketing, Staging, IT, etc.

The W-9 provides basic information about the vendor to determine if a Form 1099 is required. Trying to track the forms down after you have paid the vendor can be somewhat challenging.

It is best practice to request a W-9 from any vendor (especially your service providers) the first time you receive an invoice from them. Keep them in your files and have a process in place to request updated ones regularly.

Mistake #4

Not knowing how income is taxed and the tax rates that apply.

This one might benefit me as much as it does you. There is nothing tougher about my job than having to inform a client of a large balance due that they were not anticipating.

Whether you are self-employed, took money from a retirement account, sold your house for a gain within two years of purchasing it, or had any other number of situations occur – it could affect your tax return.

Having a conversation on the front end gives you the opportunity to plan for any tax and the opportunity for us to structure the transaction differently.

Often times, after the fact there is not much value I can provide other than to offer you a Kleenex as you process the amount of cash you will be sending to the IRS.

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Mistake #3

Are you aware of the Sales Tax rules that apply to your business? They are definitely not straight forward! This is one area that you want to get right from the beginning.

Sales Tax is a tax that is collected from your customers and you are responsible for remitting it to the state. However, if sales tax doesn’t get charged and collected it then becomes your responsibility to pay that tax.

Can your profit margins handle a 7% hit?

Mistake #2

Not having a system in place to keep track of income and expenses for a business. Too often I have clients come to me to prepare their tax returns and they have no system in place to keep track of the business activity. It makes year end much more difficult and often times those are the last minute clients. Tax time is stressful for them since they have no idea what income they will be responsible for paying tax on.
There are user friendly and inexpensive options available that if set up from the get go make things much less stressful for everyone involved.

Mistake #1

Hiring employees and not telling your CPA! When you add employees to your business there is a lot that changes. Tax accounts, unemployment accounts, payroll return filings and employee paperwork that all need to be addressed. There are various deadlines for making tax payments, calculations for how much to withhold from employees checks and a new set of laws that apply to your business.

I recommend scheduling an appointment with your accountant at the point you decide that you think you need employees. They can help you decide appropriate wages and provide costs estimates on what that employee may cost your business.