4 Accounting Myths That Can Trip Up New Entrepreneurs

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Proper accounting can help you reach your entrepreneurial goals. Read on to find out a few misconceptions about accounting. [[{“value”:”

New entrepreneurs are often optimistic — that trait helps them turn big ideas into something tangible. You may be launching a software business, opening a local ice cream parlor, or starting a consulting firm. No matter your entrepreneurial leanings, every new business venture will face financial hurdles. Unfortunately, blind optimism won’t be enough to pay the bills.

Here are a few accounting myths new entrepreneurs may believe and what you should believe instead.

1. “Accounting isn’t central to my business”

Managing your cash flow is one of the most important aspects of running your business. After all, if you don’t know where your money is going, how can you know how well the company is doing? You can’t.

That’s why accounting is so relevant to your small business. With it, you can track:

Which products are selling wellHow much money the business has for inventory spendingIf supply costs have increased since last quarterHow much payroll costs if you add another employee

How to bust the myth: Don’t assume you can do your accounting on the back of an envelope. Good accounting software isn’t expensive, so take advantage of it.

2. “It’s okay to think about accounting only occasionally”

Getting bogged down in accounting details can seem like a distraction. But without regularly tracking how much money your business is spending, your entrepreneurial vision could easily outlast the cash in your business account.

For this reason, don’t think about accounting as an occasional responsibility. Accounting is a lens for viewing how healthy your business is. If you don’t check in on your books regularly, you’ll likely miss upcoming bill payments, mismanage payroll schedules, or order inventory when you don’t have enough cash.

How to bust the myth: Carve out a time on your calendar each week to look at your business’s accounting details. Include a business partner or bookkeeper in the meeting to have a second set of eyes on how the business is doing.

3. “I don’t need a professional to help me”

I put this one on the list because I’m guilty of trying to go it alone. While I’m not an entrepreneur, I have run my own freelancing business for more than a decade. That has meant figuring out self-employment taxes, finding insurance coverage, and managing varying income streams.

While you may be able to do your own accounting for a while, here are a few examples of when to hand over the accounting reigns:

You don’t have any time to view your accountsYou ignore financial detailsYou don’t have a quarterly or annual financial planYou’re overwhelmed by learning to use accounting software

How to bust the myth: Don’t be afraid to hire a professional. Seeking their help isn’t giving up responsibility for your business; it’s hiring the right person for the right job.

4.​​ “I don’t need accounting software until tax time”

This accounting myth is a doozy because it can leave new entrepreneurs unprepared to pay taxes. If you ignore accounting and only examine your books when you’re about to do your taxes, you’ll likely be in for an unpleasant surprise.

I’ve been on both sides of this. I have to take out my self-employed taxes throughout the year and make quarterly tax payments to the IRS. While not complicated, there have been times when I managed the estimated taxes correctly — and other times when I didn’t. But estimating them incorrectly wasn’t the problem. It was ignoring the financial details that made tax time much more stressful than it needed to be.

How to bust the myth: Track expenses, potential tax deductions, and other tax-related items year round. Accounting and tax software options make this easy and help eliminate any surprises during tax time.

Set an accounting goal

Entrepreneurs are good at setting goals and working toward them. That’s a fantastic personality trait, and you could use it to your advantage in accounting. Do you want to improve your cash flow, plan for an upcoming business renovation, or save money for new equipment? Using accounting software or hiring a professional can help you get there.

The only option you don’t have is to ignore accounting and still expect to reach your financial goals.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Flow. The Motley Fool has a disclosure policy.

“}]] Read More