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10 Accounting Tips to Avoid Costly Financial Mistakes

Why is Accounting Important for Startups and Growth-Focused Organizations?

In all organizations, you will find that it is important to have at least one accountant or bookkeeper. It is the accounting function’s responsibility to collect, record, and analyze the financial data of a company. As a startup, the proper care of your accounting function will enable your organization (for-profit and non-profit alike) to have increased clarity in terms of your financial activity, which will support and add value into other functions, especially your operational functions and core strategy. On the other hand, skipping accounting processes can lead to missed opportunities and extra expenditures.

Here are 10 tips to ensure that you build a strong accounting process that adds value for strategic decisions, planning for growth and sustainability, and keeping track of reporting and compliance needs:

1. Start with the Right Bookkeeping Software

The right bookkeeping software enables your firm to track key metrics, such as profitability, with ease. When looking at different software you should consider whether you would like the software to be scalable, easily integrated with third-party applications, cloud-based, affordable, user-friendly, or able to host unlimited users.

The best overall accounting software for small businesses according to Investopedia is QuickBooks by Intuit. It also has setting options specifically designed for non-profit organizations. This software will maintain the history of your organization and if you work with an accountant, then it will be maintained consistently, accurately and on a timely basis. Interested in learning more or getting started with QuickBooks? Optinum is a ProAdvisor and can provide you with discounted rates and personalized support to create a strong accounting system. Learn more

2. Setup Beyond the Accounting Software

As a small organization, you might overlook the complexity of your accounting function because you have access to state-of-the-art accounting software that meticulously automates your bookkeeping record. Don’t! Many small businesses often rely heavily on such software combined with a do-it-yourself strategy but overlook various gaps that become visible only when things go wrong or you are required to have an audit.

To be on the safe side, always perform financial audits of spreadsheets and reports generated by such software to avoid costly mistakes. If you want to take a DIY approach, that is okay but take advantage of some coaching or classes with a qualified accountant to learn how to do it right. The system is only as good as the care you put into it.

3. Skipping the Small Stuff

Though it may sound like a minor detail, not keeping a record of the small transactions can become costly over time as such expenditures can add up and the gaps may result in failure to comply with reporting requirements. Additionally, this can have some complications when it comes to reporting your income for tax purposes. Therefore, remember to be cognizant of the smaller details.

4. Speaking of Taxes…They are not Optional!

Income tax filings (and payment where applicable) are required for any business. Whether you manage a sole proprietorship, a small corporation, a non-profit organization or a charity, the reporting requirements are important. Even if your revenue is less than $30,000 (don’t mix up income taxes with sales taxes).

Another common mistake for many new organizations, is incorrectly reporting costs. This is dependent on the accounting standard a company chooses to use. Typically, you can only expense certain costs immediately while other expenses are accounted for over time, and a select group might be eligible for capitalization as assets. Understanding these differences can not only save you some money but also from incorrectly reporting your income tax amount. Confusing right? Ask an accountant and make sure you get it right!

5. So, What is Sales Tax then?

Forgetting to charge and remit sales tax or using the wrong setup is a common (and very expensive) issue with sales tax. You can learn more about Canada’s standards for GST/HST here. Setup issues to keep in mind are how the rules apply to the products and services you sell, ensuring that your accounting system is recording how tax rules apply to you accurately, considering the rules for different types of customers and sales channels you have, and that you are aware when you need to be setup with and submitting filings for an HST account,.

6. Keep the Business and Personal Transactions Separate

Separating your business transactions from personal transactions is important not only for tax purposes but also for bookkeeping and measuring growth. To get an accurate depiction of your business, it is very important to distinguish between the two. This is usually done by creating a separate business bank account for tracking cash flow. Be mindful of the personal costs and assets that you share with the business, which you might be donating or claiming reimbursement for. There are different ways to treat this and, if you create a process ahead of time, everything can be tracked accurately and quite easily.

7. Learn the Art of Reconciliation

Many businesses often neglect reconciliation – an accounting process to ensure financial records match real account balances – which can result in accounting errors that may go undetected. To combat this, you can establish regular dates for reconciliation activities, as well as implementing an automated expense reporting software to keep on track. If you hire an accountant to manage the accounting system, reconciliations and accounting reports can be completed on a monthly or quarterly basis with a seamless process.

8. Communication is Key

Believe it or not, encouraging communication between functions and within a function throughout your organization can minimize errors as it provides more details and information to the bookkeeper/accountant. Examples of this are missing a business expense paid out of pocket, misallocating costs to the wrong product, or even sending an invoice with mistakes to clients. Such potential opportunities for miscommunication can lead to errors and are costly mistakes that can be easily avoided. Nowadays, these functions can be managed quite well within a project management software.

9. Use Proper Cash Flow Management Practices to Forecast/Plan Better

There are two types of accounting, cash, and accrual accounting. Cash accounting reports revenue and expenses when the cash is paid in or out. This needs to be monitored for how efficiently you use your cash and if there are any risks of shortage. Accrual accounting, on the other hand, reports revenue and expenses as they are earned or incurred. This is used to generate your income statement and understand the profitability potential of your products and services. Take some time to understand the different metrics that you need to set goals for and keep an eye out to keep your organization running best as possible.

10. Connect Business Strategy to Financial Results

The numbers tell the story of what is happening in your business. Make sure to connect the results back to your strategy. What went well? What did not go according to the plan? Alone, the financial figures and budget may be quite meaningless; connecting to your strategic goals and choices and company performance will prove very powerful. Also, if your goal is to gain support from funders and/or investors, you will need to mindful of everything on this list!

If there is anything we can take away from the last couple of years, it is that social disruption and economic change can impact any business and its functions. Therefore, it is essential to understand the impacts on forecasts of changes in the industry and how they will impact your business. Specifically, the accounting function must account for such disruptions and budget and adjust feedback to decision makers accordingly.

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