6 Business Accounting and Tax Compliance Mistakes and how to avoid them

6 Accounting and Tax Compliance Mistakes that can kill your business and how to avoid them. Written by Paschal Agonsi

Most businesses suffer from accounting and tax compliance bottlenecks. Highly skilled and professional accountants who can offer expert financial reporting and advice are scarce and expensive. Most small businesses hire fresh accounting graduates with the hope that they will be able to handle their accounting and tax compliance needs.

These fresh graduates often lack the expertise due to lack of exposure or experience with the various accounting and tax processes. BASHEER WAHAB Akinkunmi, Founder/Lead Accountant/Tax Strategist/Lead Consultant of Impacto Accounting And Tax Services Lagos, shares 6 accounting and tax compliance mistakes that can kill your business and how to avoid them.

1. Failing to Follow Accounting Procedures

Even small business owners, self-employed individuals, and freelancers should set up formal, documented, and detailed procedures for managing bookkeeping and accounting procedures as well for performing other routine tasks.

A helpful step is to develop standardized forms and checklists to complete to ensure consistency and accuracy. For example, you will want to document a process for setting up new vendors.

You will need the vendor’s name, address, telephone number, and Employer Identification Number (EIN), among other documents such as insurance certificates, letters of recommendation, or signed contracts. Then you will need to enter this information into your accounting software so that you can process payments.

You will want to take the time needed to consider the information you need to gather from your vendors, develop a standardized form or checklist to make sure you get that information, and then have a written policy that your employees can follow.

2. Working Without a Budget

Create a budget so that you have a baseline to judge your business’s operating results. Budgets are not only useful in curbing overspending but can be used to establish realistic, written financial objectives. Budgets should always be grounded in reality, but you can certainly use your budget to set reasonable financial goals, whether it be increasing revenues or reducing operating expenses.

3. Making Data Entry Errors

Data entry errors occur from time to time. While you cannot prevent all data entry errors, you can have a policy to perform various reconciliations in a timely manner to ensure that data entries are detected quickly and can be corrected.

For example, you will want to perform monthly bank reconciliations, as well as accounts receivable and payable reconciliations. You can also run budget-to-actual variances to identify possible errors in classifying revenues or expenses or run customer receipts or vendor payment reports periodically to ensure that all receipts and disbursements seem reasonable.

Unusual transactions should be reviewed to ensure that no data entry mistakes were made and that the transactions are accurate.

4. Failing to Back Up Accounting Software

You need to back up your business’s accounting software and other data regularly. Many small business accounting software programs have a feature that lets you set up an automatic backup of your accounting program.

Use it. You should also take the time to double-check your backup files, even going as far as to use the backup file to see if you can run your business as usual with it.

Sometimes files corrupt; sometimes you do not back up all the data you need. A quick check can identify problems with your backup process so that you can ensure you have everything you need to continue operating your business if the need should arise.

5. Doing Too Much Yourself

Outsourcing administrative tasks that do not add value to your company can be an advantage.

For example, a tax accountant is likely better versed in tax law than you are, so outsourcing tax planning and preparation to your accountant will let you lower your tax liability, increase tax compliance, and leave you with more time to devote to revenue-generating activities.

Many small business owners do not want to delegate responsibility to other capable professionals, but outsourcing accounting, legal, IT, and other administrative functions can reduce errors and increase profitability if you use the newfound time wisely.

6. Failing to Properly Categorize Income and Expenses

The shoebox method of accounting is probably not a good choice for small businesses with more than just a few transactions per year. All money coming in and going out of your business must be assigned to the appropriate category.

Business owners who stay on top of their accounting records do not run into mistakes. They will know who was billed, how much, and whether or not the customer has paid.

You will also find you’re your year-end tax preparation will be much smoother than trying to reassemble the records you need to prepare your business’s tax return right before the return is due.

BASHEER WAHAB Akinkunmi, Founder/Lead Accountant/Tax Strategist/Lead Consultant of Impacto Accounting And Tax Services Lagos.

Impacto Accounting And Tax Services offers Book-Keeping, Accounting, Tax Services, Payroll management, Pension, NHF, ITF, NSITF, ISPON, NCDMB, DPR registration and remittance, Attendance to Tax Audit, Registration with Tax Authorities, Tax Clearance Processing, Annual Tax Filing, Inventory Management, Advisory and General Management Consulting Services. Their office is situated at Cluster A1, Flat 612, 1004, Victoria Island, Lagos.

Follow @impacto_accounting_tax on Instagram or call 08068494666 for quick service.

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