Accounting, the orderly keeping of books and balances, can be considered the backbone of any company. Even more reason to keep the balance sheets clean and track every cent. Otherwise, small irregularities may soon turn into big problems during a tax audit. And then, the next letter may not be about the expected tax refund, but rather a notification for a subsequent payment. So, we’ve made a list of accounting mistakes you should absolutely avoid.
The Top 10 avoidable accounting mistakes
1. Sending faulty invoices
It should go without saying that your issues invoices must meet all legal requirements and contain all necessary data. If you get careless about the details here, don’t cry about clients that first refuse to pay and then might even get a ruling in their favor at court.
By the way: to avoid such issues altogether, consider writing an invoice template with all the required elements that you can use for issuing your customer invoices. It’s even easier if you use a professional accounting software. There are a few clever solutions, that are completely available online.
2. Mixing private and business transactions
There’s nothing worse than using a single bank account for all transactions. Ultimately, you’ll start to value having a separate business account if you only once in your life had to censor the copies of all your account statements by hand – just to avoid the tax authorities learning about your private online shopping habits. Therefore, always have separate accounts for business and private transactions. Equally important: whenever you shop, separate the wares by purpose (private or business) and use the respective account! Having mixed receipts and sorting out one type of purchases is unnecessary work; spend your time more wisely.
By the way: you can save yourself this stress altogether, if you avoid mistake #3.
3. Doing the accounting yourself (without having any clue)
There are always some self-appointed experts who think that reading up online for 5 minutes is sufficient experience to do the accounting and annual tax declaration themselves.
Trust us: It’s not! Don’t even try. You’re an entrepreneur, you should spend your valuable time with more important things.
Accounting is a full-time job. So, unless you really do have several years of hands-on experience as a tax consultant or accountant and constantly keep up with all innovations and changes, this is neither a part-time occupation nor a job for laymen.
Let a professional do it; you will avoid several hazards at the same time, i.e. flawed accounting or faulty bookings. There are even more advantages, such as avoiding mistakes 8, 9 and 10, you will read later.
4. Storing receipts on thermal paper
Once they held invoice sums and dates, now they’re empty: most receipts use thermal paper. However, if stored too long or when exposed to too much heat or sunlight, it loses the capacity to hold the imprinted color. The once important receipt goes blank and becomes useless.
Therefore, always make photocopies on light-resistant paper if your receipts are printed on thermal paper. Caution: normal photocopies can also fade! Avoid transparent document covers as they may contain plasticizers which speed up fading.
Furthermore, receipts need to be kept up to 10 years; your professional accountant knows this, so let him take care of the storage. It also prevents you from accidentally throwing away important documents when cleaning out.
5. Trying to outsmart the auditor (with unbelievably stupid tricks)
In all honesty: This mistake should rather rank #1, because it is the most commonly occurring. Regular “birthday” gifts to private friends? Business lunches on Sundays and holidays? Filling up the car with regular gasoline, while the company’s motor pool only has vehicles with diesel engines? Yes, such stupid attempts have been made again and again (and again), and none ever pass the watchful eye of the auditors.
Yes, of course, there are options to decrease your revenue and deduct expenses to minimize the tax-relevant profits. Just ask your accountant or tax consultant, they know them all!
So, stay honest and always keep your books clean, because the next audit will come for certain. And subsequent payments for attempted tax fraud will hurt your business bank account more than the few Euros you would have saved with your “smartly” reduced tax.
6. Stapling or bagging your documents or perforating them the wrong way
As mentioned in #4, the correct safekeeping of your receipts is an important detail. Remember: Accounting-friendly filing is a CORE duty!
Cleanliness – don’t use dirty or damaged file folders, binders or filing systems
Organized – each receipt is to be kept on a separate page; no staples or paper clips
Right perforation – holes for filing need to be on the LEFT; do NOT punch through numbers or text!
Ensure correct long-term storage – use light-resistant paper for photocopies; no transparent document pockets or sheet protectors
Remember this! It will save you a lot of time during tax declarations and audits, if you don’t have to un-staple/re-staple, open, un-bag/re-bag things or even go looking for missing (because of punched-though) numbers.
7. Collecting your receipts loosely and mixed with other documents
Of course, receipts are important, but not every delivery slip needs to be part of the accounting files. When it comes to record keeping, remember: As much as necessary, not as much as possible. Do ask your accountant or tax consultant.
- Clarify, what type of receipts you need to collect and which documents are rather obstructive for their work. Sorting out also costs time!
- Collect your receipts and documents in a continuous order according to their date of creation.
- Be complete! In rare cases and with low sums, you may submit an “internal receipt” to make up for lost receipts. But it’s even more efficient if you make sure nothing gets lost at all.
8. Not doing the accounting at all, because … boooring
You can admit it: Sometimes, you postpone doing the accounting, because other things need your undivided attention. Viewing lists, doing calculations and writing applications isn’t always fun, sure. But consider, after delaying it again and again, you find yourself in the situation of doing all of the month’s accounting in only one day? Wouldn’t that require a lot of motivation?
The answer is time management. Specifically reserve a fixed time per week to do only accounting, without distractions.
Also: There is an even easier way, and we’ve mentioned it before. Let someone else do it, full-time, someone with experience and knowledge. Seize back your own time instead of dealing with a chore you don’t even like doing in the first place.
9. Missing or ignoring deadlines
There is a time for everything, even for tax declarations, input tax deductions and application periods. If you miss these, you may just have gained the opportunity for a huge subsequent payment instead of a tax return. And surely, you don’t want to begin preparing something for the tax authority on the last day before the deadline.
Therefore, start with ample time, keep within the deadlines and don’t be late when handing in documents.
By the way: accountants and tax consultants know all of the deadlines in detail. One more reason for having a full-time specialist taking care of this: Late applications will be a thing of the past.
10. Not taking care of outstanding invoices or your financial plan
Yes, it’s incredulous, but there are, in fact, entrepreneurs having too much good faith in the payment moral of their clients. Then having an overdue invoice that cannot be included in accounting is more that irritating. Therefore:
- Take care of your finances, or have someone manage it for you. You’ll always know (or are just be one question away from knowing) how your business is doing financially.
- Be vigilant about unpaid invoices; delayed payments may lead to dunning, court and collection services. Surely, neither you nor your client want either of these as a basis for future business deals.
- Make a financial plan. Be sure to create financial cushions that enable you to react to unpredictable events. Optimize your liquidity and ensure your solvency, because you can’t pay your bills with promises.
If you want to avoid that last mistake, we have a great recommendation for you: try Finiata! You can turn your issued and still unpaid invoices into available cash. The fee for our discreet service is generally tax deductible. And even if your customer doesn’t pay on time, you can simply extend the payback date.
So, what do you think about our list? Are you missing anything? Should we go into more details about a specific aspect? Leave us your thoughts as a comment below.