Breathe a sigh of relief because we made it through tax time. Then remember that small-business owners should be aware of their accounting practices all year long. Let’s talk about some common mistakes that you can fix to help change your next fiscal year from red to black.
1. Be careful when making a large capital expenditure, such as equipment. By paying with cash you might take too much from your reserve, but by paying it off over time you can’t claim it as a one time expense on your taxes. If you can’t claim it as a one time expense you will probably have to pay more in taxes. If you don’t have enough cash to purchase the item, see if you can use a credit card or short-term loan. Always be careful of high interest rates and don’t forget to check into leasing the item if it’s a temporary need.
2. Watch what you are spending. Your business may show a nice profit, but you have to be careful when you start to expand that you don’t spend more than you have. You could hurt your business by borrowing money to expand if you don’t have enough coming in to cover your debt. It might be confusing because you will show a profit, but still be floundering in debt. If that happens, check your spending.
3. Don’t count your chickens before they are hatched or your profit before the job is completed. It’s easy to get excited and count the profit during the month or year that you get the new job or new client but you need to wait until the product or service has been delivered or you will have a false sense of profitability. It can also make it look like your company was profitable when it really only broke even.
Accounting isn’t usually the most fun aspect of your business, but it is an extremely important one. Make a plan, keep track of your money, and work your plan to help your business succeed.
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