How to Avoid Common Accounting Mistakes That New Business Owners Make
Blue Canyon Tips
You’ve read the books, attended the lectures, and perhaps even worked at an accounting firm. Now you’re ready to strike out on your own as a Certified Public Accountant (CPA) or accountant. What could go wrong? Plenty, if you’re not careful. The stress and responsibility of being your own boss can lead even seasoned professionals astray. If that sounds like you, don’t panic! Many accounting newbies make the same mistakes. Here are some common errors CPAs and accountants often encounter when launching their own business.
Neglecting tax planning
It may seem boring, but accurate tax planning is essential for any business. If taxes are not properly calculated, you will have to pay the difference at the end of the year. Many new CPAs and accountants make the mistake of focusing solely on numbers and not their clients’ tax obligations. This is a critical mistake because the CRA may audit your clients at some point. If your numbers are wrong and your client does not pay the correct amount, you will be held responsible for that amount. With that in mind, you need to know your client’s tax obligations to ensure their numbers are correct.
Hiring the wrong people
As an entrepreneur, you are often faced with tough decisions. One of the most important is choosing the right employees. While it’s tempting to hire those you know and trust, it’s important to be objective and hire the right people. If you hire the wrong people, not only will they hurt your company, but they can also open you up to costly legal issues. In addition, it’s not uncommon for CPAs and accountants to be audited. Although it’s rare, your auditors may ask questions like, “How many people work here?” If you respond, “Oh, Michael, Tim, and Sandra work here,” auditors know you hired a friend and friend-dates-friend. If you don’t hire the right people, you not only put your business in jeopardy, but you also put your reputation on the line. Hiring the wrong people can also lead to high turnover. If your employees don’t feel challenged or supported, they will likely move on. When that happens, you lose even more time finding and training new people.
Working too many hours
Being your own boss means juggling clients, employees, finances, and more. It can be tempting to work yourself to the bone to keep up with the workload. Working too many hours, however, can lead to mistakes and mistakes lead to audits. Auditors are looking for errors. If they find you made too many errors, they will likely refer the case to the CRA for a full audit. If you’re overworked, you will make mistakes. You may forget to record an expense, record a number incorrectly, or fail to report an important document. No one is perfect but being overworked increases the risk of being audited.
Failing to understand your client’s business requirements
Many CPAs and accountants make the mistake of assuming they know what their clients need. The reality is, you know the tax and accounting requirements, but the people who hire you may not. If you fail to fully understand your client’s requirements and needs, you run the risk of making mistakes that could land you in hot water with the CRA. For example, a CPAs and accountants often work with investors who purchase real estate. While investors can claim depreciation on their taxes, property owners cannot. If you fail to understand the requirements and needs of your clients and provide them with incorrect information, you could be audited by the CRA.
When you’re an employee and you find an error in your company’s books, you report it to your manager. You trust that your company will do the right thing. When you’re your own boss, you cannot report errors you find to someone else. You must take the necessary steps to fix the error. If you fail to report the error and it results in an audit, you are fully responsible. If you fail to report an error and the CRA finds out, you face fines, prison time, and the loss of your CPA or accountant license. Finally, when wrongdoing is discovered, it’s not uncommon for the CRA to go after everyone who was involved, even if they didn’t know the mistake was being made. If you are audited, it’s important to make sure you’re following proper practices to help reduce your risk of being audited again.