Two Accounting Mistakes Business Owners Should Never Make

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As a business owner, you know that there are plenty of accounting tasks and duties that you should take care of. Your accountant makes suggestions. Your banker maybe specifies particular requirements. Heck, even your bookkeeper may regularly be pointing out things you need to take care of. Here, however, rather than pointing out things you should do, I'll point out two things that you should never do.

Misrepresent Your Financial Affairs

You should never misrepresent your financial condition and your business's financial performance. You may think that you would never do this, but let me tell you how it always seems to start. You go to the bank for a loan (perhaps a home mortgage). The bank loan officer looks at your business's profit & loss statement and then tells you that you're not making quite enough money or that your debts seem a bit high.

It appears that a fair number of business owners go home, mull things over, and then think, "What if I made more money?" Asking and answering this question leads quite naturally to a careful review of the accounting software data, and suddenly the business owner has re-categorized a series of business transactions as personal expenses. This has the nice effect of increasing the business profits. When the bank loan officer looks at your profit & loss statement, the loan is approved.

This may seem like a harmless solution, but misrepresenting your finances subjects you to two extremely serious risks. First, by misrepresenting your finances, you've committed a felony because you fraudulently obtained your loan. In a worst-case scenario, the bank can probably force you to repay the loan immediately. Many of the laws that normally protect you if you're a borrower don't protect you if you've fraudulently obtained a loan. (In a bankruptcy proceeding, for example, you probably can't escape repayment of fraudulently obtained loans.)

Another serious risk you run by misrepresenting your finances occurs if the IRS audits your return. If the IRS agent sees that expenses you claimed as business deductions on your tax return are later described as personal expenses on a Profit & Loss statement, the IRS can probably disallow the business deductions. If you assured the bank that $3,000 of travel expenses were for a personal vacation, you'll need to do a lot of backpedaling to convince the IRS that the $3,000 was really for business travel.

Borrow Payroll Tax Deposit Money

Never borrow the money you've deducted from an employee's payroll check for taxes, and never spend the money you've set aside for the payroll taxes that you owe as the employer. If for any reason you can't repay the money, the IRS will pursue you with merciless vigor.
If you get to the point where you can't continue business without dipping into the payroll tax deposit money, don't compound your problems by getting into trouble with the IRS. It doesn't matter what you want to use the money for. If you can't make payroll, can't get a supplier to deliver goods, or can't pay the rent without borrowing a bit of the payroll tax deposit money, you simply can't make payroll, receive the goods, or pay the rent.

If you did borrow the payroll tax deposit money, you would be stealing from the IRS. And when the IRS finds out, the IRS may padlock your business some afternoon, thereby putting you out of business; seize any valuable personal assets you own, including your home; and garnish your wages if you get another job. In short, the IRS will do anything it legally can to collect the money you should have paid.

Because of all this, I can't imagine a situation in which it makes sense to borrow the payroll tax deposit money. If things are so bad that you can't go on without taking the payroll tax deposit money, it's time for you to consider drastic action--perhaps closing the business, filing for bankruptcy, laying off employees, or finding an investor.

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Two Accounting Mistakes Business Owners Should Never Make

Image : http://www.flickr.com

As a business owner, you know that there are plenty of accounting tasks and duties that you should take care of. Your accountant makes suggestions. Your banker maybe specifies particular requirements. Heck, even your bookkeeper may regularly be pointing out things you need to take care of. Here, however, rather than pointing out things you should do, I'll point out two things that you should never do.

Misrepresent Your Financial Affairs

You should never misrepresent your financial condition and your business's financial performance. You may think that you would never do this, but let me tell you how it always seems to start. You go to the bank for a loan (perhaps a home mortgage). The bank loan officer looks at your business's profit & loss statement and then tells you that you're not making quite enough money or that your debts seem a bit high.

It appears that a fair number of business owners go home, mull things over, and then think, "What if I made more money?" Asking and answering this question leads quite naturally to a careful review of the accounting software data, and suddenly the business owner has re-categorized a series of business transactions as personal expenses. This has the nice effect of increasing the business profits. When the bank loan officer looks at your profit & loss statement, the loan is approved.

This may seem like a harmless solution, but misrepresenting your finances subjects you to two extremely serious risks. First, by misrepresenting your finances, you've committed a felony because you fraudulently obtained your loan. In a worst-case scenario, the bank can probably force you to repay the loan immediately. Many of the laws that normally protect you if you're a borrower don't protect you if you've fraudulently obtained a loan. (In a bankruptcy proceeding, for example, you probably can't escape repayment of fraudulently obtained loans.)

Another serious risk you run by misrepresenting your finances occurs if the IRS audits your return. If the IRS agent sees that expenses you claimed as business deductions on your tax return are later described as personal expenses on a Profit & Loss statement, the IRS can probably disallow the business deductions. If you assured the bank that $3,000 of travel expenses were for a personal vacation, you'll need to do a lot of backpedaling to convince the IRS that the $3,000 was really for business travel.

Borrow Payroll Tax Deposit Money

Never borrow the money you've deducted from an employee's payroll check for taxes, and never spend the money you've set aside for the payroll taxes that you owe as the employer. If for any reason you can't repay the money, the IRS will pursue you with merciless vigor.
If you get to the point where you can't continue business without dipping into the payroll tax deposit money, don't compound your problems by getting into trouble with the IRS. It doesn't matter what you want to use the money for. If you can't make payroll, can't get a supplier to deliver goods, or can't pay the rent without borrowing a bit of the payroll tax deposit money, you simply can't make payroll, receive the goods, or pay the rent.

If you did borrow the payroll tax deposit money, you would be stealing from the IRS. And when the IRS finds out, the IRS may padlock your business some afternoon, thereby putting you out of business; seize any valuable personal assets you own, including your home; and garnish your wages if you get another job. In short, the IRS will do anything it legally can to collect the money you should have paid.

Because of all this, I can't imagine a situation in which it makes sense to borrow the payroll tax deposit money. If things are so bad that you can't go on without taking the payroll tax deposit money, it's time for you to consider drastic action--perhaps closing the business, filing for bankruptcy, laying off employees, or finding an investor.

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The 5 Hiring Best Practices For Every Small Business

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You probably don't need a reminder, but it's already the 4th quarter of 2006. The year is more than 75 percent up. So have you accomplished 75 percent of your important productivity, sales and revenue goals?

If you have, congratulations. If not, what are you doing to make this your best year ever?

Whether you still have the motivation to meet your potential this year or you've given up and are waiting until 2007 to take the necessary steps, this article contains the quickest and easiest way to improve the productivity, sales and profitability of your organization.

Stop Waiting Until All Else Fails:

I'm sure you've tried just about everything this year to increase the profitability of your company from updating technology to modifying marketing to reorganizing your systems. All in attempts to improve the motivation, teamwork and productivity of your people.

Chances are, none of these costly endeavors have been as successful as you'd like. The main reason is you still have the same ineffective people operating the new technology, servicing your clients and running your systems.

Your competitors that have become the most respected, productive and profitable businesses in your market have realized a very important fact. Productive systems do not make you profitable... productive people do.

Hopefully you'll be able to realize this before every other attempt to increase your productivity and sales has failed, drained your revenues and left you felling helpless. To meet your important goals, don't wait any longer and replace your unreliable, unmotivated, unproductive team members with TOP Performers.

The 5 Hiring Best Practices:

To grow your business and meet your important goals, you're going to need TOP Performing employees in every position. Not just someone above average that meets your expectations half or most of the time, but someone that will become five to eight times more productive than average employees. Studies have shown, that's what the TOP Performers in a position are.

To fill your team with the most productive employees, here are the five hiring best practices:

1. "Active" Recruiting Strategy Don't wait for TOP Performers to find you because they wont; unless you are already one of your market's leaders. Classified ads, general web boards and employment agencies are all "passive" recruiting strategies and will give you "passive" job seekers. To attract the best employees in your industry, you're going to need to actively recruit.

2. Legal Job Descriptions If you haven't developed job descriptions for every position in your company, you're setting yourself up for a lawsuit. No, they aren't required by law, but they are usually your second line of defense in a trial (first is a file on every employee). In hiring, they will also help you present to candidates exactly what is required to get a job in your company.

3. Productivity Standards with "Job Success Patterns" Whereas job descriptions are the basics, "Job Success Patterns" are the specifics. In these you present to candidates what is required to keep their job once hired; or your productivity standards. More specifically, what makes your current TOP Performers so successful in regards to their skills, internal motivators and natural behaviors and then making these the minimum requirements for employment.

4. Lead, Behavioral Based Interview Questions If you ask the same questions your competitors are asking, you'll get the same answers they are getting too. Mainly because most organizations ask the same 10 interview questions that your candidates have learned how to answer in books, courses and through agencies. Lead, behavioral based interview questions start with "Describe a time...," and "Give an example of..." and end with something job related.

5. Pre-Employment Culture, Team & "Job Match" Assessments Since "luck" is not one of the five hiring best practices, you need to do all you can to remove instinct and emotion from your hiring decisions. As much as you may hate to admit it, your instincts have been wrong in the past and they will be wrong in the future. Most of the fortune 500 and virtually every market leading organization (no matter the size) uses assessments because studies have shown they can increase your hiring success rate of TOP Performers by up to 500 percent.

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