Xero, the producer of Xero online accounting software for small businesses, has revealed the results of a survey of 500 US accountants and compiled tips to help small business owners take control of their finances during tax season and beyond. Xero commissioned the survey via IBOPE Zogby International through an online survey of 501 accountants in the United States from February 1 to February 14, 2012.
Accountants say the two most common mistakes that small business owners make isn't having ongoing insight into their financials and only talking to their accountant during tax time.
Here's a summary of key findings:
Mixing business and pleasure: About half (45 percent) report that mixing business and personal expenses in deductions is the most common mistake businesses make that could trigger an audit by the IRS; a quarter (26 percent) say it's having excessive deductions to income.
Home is where the money is: Three in ten (29 percent) say the home office is the most commonly overlooked deduction for small business owners, while one in four (24 percent) say it's deductions for hiring new employees.
Tax tunnel vision: One in four (26 percent) say not having ongoing insight into their financials is the most common mistake small business owners make when it comes to their finances, while one in five (18 percent) say it's talking to their accountant only during tax time.
Constant contact: About half (47 percent) think small businesses should communicate with their accountant once a month in order to keep their business in good financial standing, while a fifth think communication should take place once a week (22 percent) or quarterly (19 percent).
"The biggest challenge that small businesses face is simply that the owners typically work in the business and not on the business, and for many, that means only diving into their finances during tax time", said Simon Gray, accountant in Xero's network and managing partner of Gray Consulting, Inc. "With Xero, managing business financials can essentially be turnkey, as its software provides small business owners with ongoing insight and tools for managing their finances in an easier way."
Overall, accountants polled say small businesses should communicate with their advisors on a more frequent basis to gain more control over their finances. Moreover, most accountants (71 percent) reveal that they're able to give more meaningful advice to small businesses that provide a real-time view of their finances to their accountants.
"With cloud-based financial tools, small businesses can now benefit from ongoing insight into the overall health of their company", said Jamie Sutherland, Xero president of US operations. "Xero is delivering a powerful, hassle-free way for small businesses to manage the complicated task of their finances, enabling them to focus on what they do best – run their business."
Xero compiled its top five tips to help small businesses take better control of their finances:
1. Forecast financials: It's critical that businesses take a look back at their financial statements, activity, and sales to determine what worked and what didn't so they can make a plan for the upcoming year. As part of forecasting, businesses need to understand the sales tax the company owes and keep that money in a different account to eliminate the possibility for error.
2. Follow the money: It's critical for small businesses to have real-time insight into their bank balance and review it on a daily basis. Cloud-based accounting applications, like Xero, provide small businesses with an instant view of their financial picture and enable them to share reports with key players in the business, so everyone is aware of what's going on with the company's finances.
3. Insight into cash flow: It's important that businesses have a daily process set up so they can easily review the cash they expect and know what is overdue. That way, they can immediately follow up on delinquent payments. By implementing an easy-to-use and manage system, small businesses have a way to ensure the cash is getting back to their business.
4. Monitor customer activity: Small businesses should have a clear picture of their customer base – including the overall health and wellness of the group, purchasing patterns and behavior, and where they all stand on payments. It's also important that sales, support, and management teams are in alignment regarding customer goals. This ensures they're all on the same page about how that maps to financials and forecasting.
5. Understand tax time obligations: Small businesses should always take time to understand their tax obligations and learn if they've changed at all from the previous year. By planning ahead for their obligations and meeting regularly with their accountant to estimate what will be owed, small businesses can plan accordingly so they can start and finish the year strong.