When it comes to growing your business, few decisions can pay off as significantly as how well you set up the management and oversight of your firm's finances.
\r\nThat's typically the task for an accountant or bookkeeper, but many small business owners go it alone, attempting to balance the complex burden of managing their books with everything else they already do to keep their business going.
\r\nOnly about one-third of small U.S. businesses employ a bookkeeper, and just under a quarter employ an accountant, according to Accounting Today. The same survey found that 66% of small business owners had no plans to hire an accountant.
\r\nEditor's note: Looking for the right accounting software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
\r\n\r\nA broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks. While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.
\r\nHere are seven accounting mistakes that can derail growth for small businesses and tips for how to avoid them.
\r\nEven experienced accountants and bookkeepers make mistakes, but let's face it, they're finance professionals, and you probably aren't. And even if you are, is it really worth the extra time investment to manage your firm's books on your own?
\r\nHiring a professional will help minimize the potential for errors in key areas, such as expense tracking, paying vendors on a timely basis, balancing bank accounts and staying on top of payroll.
\r\nAre you certain you're handling employees' withholding taxes properly? Are you keeping track of all your financial transactions, regardless of size? A few mistakes in these areas and, suddenly, you're not really saving money by not bringing on qualified help.
\r\nYou are best served by considering hiring a bookkeeper licensed by the National Association of Certified Public Bookkeepers. They mainly record your business' financial transactions, typically on industry-standard accounting software.
\r\nCertified public accountants assist with tax planning and help you spot trends – and avoid mistakes – in the way you're managing your books. To verify that a potential hire is a CPA, check their license in the AICPA.org database.
\r\nIf you can't afford a full-time, in-house financial professional, another option is to hire a freelance bookkeeper or accountant who works remotely. Also known as virtual employees, going this route is relatively easy, thanks to a bevy of freelance sites that match employers with professional freelancers.
\r\nBusinesses that tap into FINSYNC's virtual assistance network are matched with a skilled financial professional that’s best positioned to help the business grow. [Read related article: How to Hire the Right Accountant for Your Business]
\r\nAccounting and bookkeeping lose their effectiveness when records are not kept accurately. When that happens, you leave your business vulnerable to losing money, being late on important bills, setting yourself up for headaches come tax season and more problems that can get in the way of a growing business.
\r\nIt's not just errors made when entering transaction data into a spreadsheet or failing to reflect that you paid a bill. Inaccurate financial tracking ultimately costs your business money and undermines your ability to plan for next month or beyond.
\r\nIt's essential that your accounting system – whether it's just you and a spreadsheet or the persons hired to maintain your books – keep track of every transaction so that you can accurately gauge the health of your business.
\r\nWhile it helps to have a financial professional handle your books, there is another opportunity to help you or your bookkeeper do their job better: an integrated accounting system.
\r\nIn an integrated system, the software connects various financial transaction-related functions that a business engages in – paying bills, tracking bank deposits and withdrawals, invoicing clients, cutting paychecks – so that all the transactions are tracked automatically.
\r\nOne of the key benefits is a comprehensive capture of a business's costs, which is essential to growing and staying profitable. [Read related article: Financial Tracking 101: Best Implementation Practices and Best Tools]
\r\nSmall business owners often blur the line between their individual personal finances and those of their business. It's understandable, especially when a business is just beginning to find its footing.
\r\nYou head on over to Costco or Walmart and pick up some office supplies and, because you're already there, add in a few on-sale items for your home.
\r\nBut it goes beyond combining business and personal items on a single receipt. More than one-quarter of small business owners and managers don't have a separate bank account for their business, according to Clutch.
\r\nThat's not a good move. Mixing up financial accounts can make it tougher to sort out your personal from business transactions, which could be a big headache when tax time comes around. This has the potential to cause you to miss an expense that you could list as a business deduction.
\r\nIt could also be a problem when you apply for a loan or a line of credit, as lenders want a complete and accurate snapshot of your business's finances when they consider your loan application.
\r\nIf you've been using your business and personal bank accounts interchangeably, wean yourself off the habit. Open a separate business bank account. You'll likely get some incentives to do so from the bank where you have your personal account.
\r\nIf you're still using your own personal credit card for business purchases, apply for a business credit card. Major banks like JPMorgan Chase have cards that cater to small business owners and offer cash-back bonuses on purchases.
\r\nIf you find that you're in a bind and don't have any choice, separate business and personal purchases so you can set aside business receipts.
\r\nCash flow is essential to keeping a business operating from one day to the next. Billing or invoicing customers efficiently goes a long way toward ensuring that your revenue comes in on a timely basis so that you can tap into it for expenses, payroll and other needs.
\r\nBut sometimes businesses that don't have a good handle on the accounting end of their operations can fall well short of this. Invoicing gets delayed and, naturally, it takes that much longer for customers to pay, which may leave your business stretched thin to cover its own bills.
\r\nThat doesn't just raise the possibility of being late on your own bills. Some 82% of U.S. business fail because of cash flow problems, according to Visual Capitalist. Another 29% fail because they run out of cash altogether.
\r\nTo tune up your billing management, begin by invoicing your customers immediately after you've fulfilled your end of the transaction.
\r\nEmailing an invoice is clearly an improvement over sending a bill by snail mail. For a quicker, more seamless process there's also software that can send invoices to your customers automatically.
\r\nDo-it-yourself tax software may be good for preparing a simple tax return, which could be a tempting solution for small businesses looking to save money on an accountant or other tax specialist.
\r\nEven those tackling their small business tax filing using the DIY approach can stumble if they haven't taken the steps along the way to properly document their company's finances.
\r\nNo one enjoys struggling to piece together all manner of receipts and documents required to file an accurate tax return in April because they made the mistake of not being organized the other 11 months of the year. And that goes double for businesses, which must navigate a more complicated route to be in compliance with Uncle Sam's increasingly complex tax laws.
\r\nIt's not surprising that while more than 93% of small businesses say they are very or somewhat confident in their ability to file their taxes accurately, nearly one-third also says they believe they end up paying too much come tax time, according to a survey by Clutch.
\r\nEveryone gets complacent about receipts and records now and again. The best approach is to minimize errors and oversights by ensuring that your business is using an accounting system that seamlessly tracks company expenses, payroll and other basic components of your business's profit and loss statement.
\r\nEnlisting a qualified tax professional to check in periodically and do tax-related organizing sweeps of your business can also help spot potential savings or even things that your business could be doing differently well before the tax year is over.
\r\nSmall businesses rely on employees, freelancers, independent contractors, and gig economy workers, to get the job done. How they classify these individuals could result in lawsuits and tax penalties if they do it wrong.
\r\nIf a small business owner misclassifies an employee, it means federal and state governments miss out on payroll taxes and the penalties for that could be \"substantial\" according to the Department of Labor. Business owners may be on the hook to cover payroll, Social Security, unemployment and Medicare taxes for employees it misclassified. The business can also get hit with penalties and face lawsuits if employees are aren't reimbursed and provided benefits under the Fair Labor Standards Act.
\r\nTo avoid misclassifying employees, first determine if they are considered an employee or contractor by the job they perform, how they are paid, and what their relationship is with your company. If the employee works eight hours a day, five days a week, is paid a salary and receives health benefits, he or she is a full-time employee. If the person works and gets paid on a project basis and isn't provided any benefits, he or she should probably be classified as a contractor.
\r\nOnce you've made that determination, make sure the worker fills out the correct documentation based on their classification. A contractor fills out a W-9 form while a full-time employee completes a W-4 form. [Read related article: When to Hire a Full-Time Employee vs. Contractor]
\r\nIf you run afoul of the rules there are some remedies. If you can prove to the IRS \"reasonable basis claim,\" you can get relief. You need to prove one of the following to be eligible:
\r\nThe last thing a small business owner wants to go through is a tax audit. But if you do have to, the more paperwork you have the better off you'll be. In this digital age where everything lives in the cloud or on an app, it's understandable that people don't save their paperwork for a few weeks, let alone seven years, but the IRS will want it during an audit. A good rule of thumb is to save the following documents for at least seven years:
\r\nAdditional reporting by Donna Fuscaldo.
\n","docType":"article","guid":"articles_81cf703ea7038adedd4d27ca26fc832f","lastModified":"2020-12-14T12:32:00.000Z","published":"2019-09-03T15:00:00.000Z","structuredData":null,"subtitle":"Failing to have a firm grasp on your business's financial status can significantly hamper your ability to grow. Here are seven accounting mistakes to avoid.","template":"v1","title":"7 Accounting Mistakes That Cost Small Businesses Significant Growth","type":"article","author":{"avatar":null,"bio":"I am passionate about helping small businesses to strategically scale and grow by better understanding their options for financing, optimizing their cash flow and improving how they financially manage their business, even if as business owners they don’t have a financial background. I have dedicated nearly 20 years of my career to the field of lending, helping companies to raise capital and better drive sustainable results in their business. As an SME owner myself, I share the very tactics and strategies that I practice on a daily basis in my own company.","name":"Tucker Mathis","image":null,"slug":null,"social":{"facebook":"","linkedin":"https://www.linkedin.com/in/tucker-mathis-127293a/","twitter":"https://twitter.com/finsync","website":"https://www.finsync.com/"},"status":"enabled","title":null,"type":"New BDC Member","user":{"imagePath":"https://staging.business.com/images/uploads/user/profile/6847be1e731059071647a73e3b5350436a1fa.jpg","profile":{"company":"FINSYNC","jobTitle":"CEO","website":"https://www.finsync.com/"}}},"breadcrumbs":null,"channels":{"primary":{"name":"Finance","slug":"finance"},"sub":{"name":"Accounting","slug":"accounting"}},"meta":{"robots":"index, follow","description":"Here's a look at common accounting mistakes you need to avoid.","title":"Accounting Mistakes Your Small Business Should Avoid - business.com"},"parsedContent":{"toc":[{"id":"1-failing-to-hire-an-experienced-finance-professional","title":"1. Failing to hire an experienced finance professional"},{"id":"2-not-tracking-business-costs-accurately","title":"2. Not tracking business costs accurately"},{"id":"3-mixing-personal-finances-with-business-accounts","title":"3. Mixing personal finances with business accounts"},{"id":"4-inefficiently-managing-billing","title":"4. Inefficiently managing billing"},{"id":"5-not-properly-planning-for-tax-season","title":"5. Not properly planning for tax season"},{"id":"6-failing-to-classify-employees-properly","title":"6. Failing to classify employees properly"},{"id":"7-going-paperless-without-a-backup","title":"7. Going paperless without a backup"}],"json":[{"component":"ul","children":[{"component":"li","children":["The vast majority of small businesses handle all of their accounting and bookkeeping on their own."]},{"component":"li","children":["If you do hire an outside professional, make sure they are either a certified bookkeeper or accountant."]},{"component":"li","children":["Small businesses are best served separating their personal and businesses expenses."]},{"component":"li","children":["Small businesses should always be preparing for tax season"]}]},{"component":"p","children":["When it comes to growing your business, few decisions can pay off as significantly as how well you set up the management and oversight of your firm's finances."]},{"component":"p","children":["That's typically the task for an accountant or bookkeeper, but many small business owners go it alone, attempting to balance the complex burden of managing their books with everything else they already do to keep their business going."]},{"component":"p","children":["Only about ",{"component":"a","props":{"href":"https://www.accountingtoday.com/news/few-small-businesses-employ-bookkeepers-or-accountants","target":"_blank","rel":"noopener nofollow"},"children":["one-third of small U.S. businesses employ a bookkeeper"]},", and just under a quarter employ an accountant, according to Accounting Today. The same survey found that 66% of small business owners had no plans to hire an accountant."]},{"component":"p","children":[{"component":"strong","children":["Editor's note: Looking for the right accounting software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs."]}]},{"component":"RfqWidget","props":{"className":"bz-form-widget","id":"bz-form-widget-0","widgetCategoryId":"10695"},"children":[" "]},{"component":"p","children":["A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks. While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business."]},{"component":"p","children":["Here are seven accounting mistakes that can derail growth for small businesses and tips for how to avoid them."]},{"component":"h2","props":{"id":"1-failing-to-hire-an-experienced-finance-professional"},"children":["1. Failing to hire an experienced finance professional"]},{"component":"p","children":["Even experienced accountants and bookkeepers make mistakes, but let's face it, they're finance professionals, and you probably aren't. And even if you are, is it really worth the extra time investment to manage your firm's books on your own?"]},{"component":"p","children":["Hiring a professional will help minimize the potential for errors in key areas, such as expense tracking, paying vendors on a timely basis, balancing bank accounts and staying on top of ",{"component":"Link","props":{"href":"https://www.business.com/categories/online-payroll-services/"},"children":["payroll"]},"."]},{"component":"p","children":["Are you certain you're handling employees' withholding taxes properly? Are you keeping track of all your financial transactions, regardless of size? A few mistakes in these areas and, suddenly, you're not really saving money by not bringing on qualified help."]},{"component":"p","children":["You are best served by considering hiring a bookkeeper licensed by the National Association of Certified Public Bookkeepers. They mainly record your business' financial transactions, typically on industry-standard ",{"component":"Link","props":{"href":"https://www.business.com/categories/accounting-software/"},"children":["accounting software"]},"."]},{"component":"p","children":[{"component":"Link","props":{"href":"https://www.business.com/articles/hire-accountant-for-taxes/"},"children":["Certified public accountants"]}," assist with tax planning and help you spot trends – and avoid mistakes – in the way you're managing your books. To verify that a potential hire is a CPA, check their license in the ",{"component":"a","props":{"href":"https://www.aicpa.org/forthepublic/findacpa.html","target":"_blank","rel":"noopener nofollow"},"children":["AICPA.org database"]},"."]},{"component":"p","children":["If you can't afford a full-time, in-house financial professional, another option is to hire a freelance bookkeeper or accountant who works remotely. Also known as virtual employees, going this route is relatively easy, thanks to a bevy of freelance sites that match employers with professional freelancers."]},{"component":"p","children":["Businesses that tap into ",{"component":"a","props":{"href":"https://www.finsync.com/","target":"_blank","rel":"noopener nofollow"},"children":["FINSYNC's"]}," virtual assistance network are matched with a skilled financial professional that’s best positioned to help the business grow. ",{"component":"strong","children":["[Read related article: "]},{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-hire-the-right-accountant-for-your-business/"},"children":[{"component":"strong","children":["How to Hire the Right Accountant for Your Business"]}]},{"component":"strong","children":["]"]}]},{"component":"h2","props":{"id":"2-not-tracking-business-costs-accurately"},"children":["2. Not tracking business costs accurately"]},{"component":"p","children":["Accounting and bookkeeping lose their effectiveness when records are not kept accurately. When that happens, you leave your business vulnerable to losing money, being late on important bills, setting yourself up for headaches come tax season and more problems that can get in the way of a growing business."]},{"component":"p","children":["It's not just errors made when entering transaction data into a spreadsheet or failing to reflect that you paid a bill. Inaccurate financial tracking ultimately costs your business money and undermines your ability to plan for next month or beyond."]},{"component":"p","children":["It's essential that your accounting system – whether it's just you and a spreadsheet or the persons hired to maintain your books – keep track of every transaction so that you can accurately gauge the health of your business."]},{"component":"p","children":["While it helps to have a financial professional handle your books, there is another opportunity to help you or your bookkeeper do their job better: an integrated accounting system."]},{"component":"p","children":["In an integrated system, the software connects various financial transaction-related functions that a business engages in – paying bills, tracking bank deposits and withdrawals, invoicing clients, cutting paychecks – so that all the transactions are tracked automatically."]},{"component":"p","children":["One of the key benefits is a comprehensive capture of a business's costs, which is essential to growing and staying profitable. ",{"component":"strong","children":["[Read related article: "]},{"component":"Link","props":{"href":"https://www.business.com/articles/financial-tracking-101/"},"children":[{"component":"strong","children":["Financial Tracking 101: Best Implementation Practices and Best Tools"]}]},{"component":"strong","children":["]"]}]},{"component":"h2","props":{"id":"3-mixing-personal-finances-with-business-accounts"},"children":["3. Mixing personal finances with business accounts"]},{"component":"p","children":["Small business owners often blur the line between their individual personal finances and those of their business. It's understandable, especially when a business is just beginning to find its footing."]},{"component":"p","children":["You head on over to Costco or Walmart and pick up some office supplies and, because you're already there, add in a few on-sale items for your home."]},{"component":"p","children":["But it goes beyond combining business and personal items on a single receipt. More than one-quarter of small business owners and managers ",{"component":"a","props":{"href":"https://clutch.co/accounting/resources/small-business-accounting-tips-2018","target":"_blank","rel":"noopener nofollow"},"children":["don't have a separate bank account"]}," for their business, according to Clutch."]},{"component":"p","children":["That's not a good move. Mixing up financial accounts can make it tougher to sort out your personal from business transactions, which could be a big headache when tax time comes around. This has the potential to cause you to miss an expense that you could list as a business deduction."]},{"component":"p","children":["It could also be a problem when you ",{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-apply-for-a-small-business-loan/"},"children":["apply for a loan"]}," or a ",{"component":"Link","props":{"href":"https://www.business.com/articles/what-is-a-credit-line/"},"children":["line of credit"]},", as lenders want a complete and accurate snapshot of your business's finances when they consider your loan application."]},{"component":"p","children":["If you've been using your business and personal bank accounts interchangeably, wean yourself off the habit. ",{"component":"a","props":{"href":"https://www.businessnewsdaily.com/6477-business-bank-account-documentation.html","rel":"nofollow"},"children":["Open a separate business bank account"]},". You'll likely get some incentives to do so from the bank where you have your personal account."]},{"component":"p","children":["If you're still using your own personal credit card for business purchases, ",{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-apply-for-a-business-credit-card/"},"children":["apply for a business credit card"]},". Major banks like JPMorgan Chase have cards that cater to small business owners and offer cash-back bonuses on purchases."]},{"component":"p","children":["If you find that you're in a bind and don't have any choice, separate business and personal purchases so you can set aside business receipts."]},{"component":"h2","props":{"id":"4-inefficiently-managing-billing"},"children":["4. Inefficiently managing billing"]},{"component":"p","children":[{"component":"Link","props":{"href":"https://www.business.com/articles/cash-flow/"},"children":["Cash flow"]}," is essential to keeping a business operating from one day to the next. Billing or invoicing customers efficiently goes a long way toward ensuring that your revenue comes in on a timely basis so that you can tap into it for expenses, payroll and other needs."]},{"component":"p","children":["But sometimes businesses that don't have a good handle on the accounting end of their operations can fall well short of this. ",{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-write-an-invoice/"},"children":["Invoicing"]}," gets delayed and, naturally, it takes that much longer for customers to pay, which may leave your business stretched thin to cover its own bills."]},{"component":"p","children":["That doesn't just raise the possibility of being late on your own bills. Some ",{"component":"a","props":{"href":"https://www.visualcapitalist.com/why-do-businesses-fail/","target":"_blank","rel":"noopener nofollow"},"children":["82% of U.S. business fail because of cash flow problems"]},", according to Visual Capitalist. Another 29% fail because they run out of cash altogether."]},{"component":"p","children":["To tune up your billing management, begin by invoicing your customers immediately after you've fulfilled your end of the transaction."]},{"component":"p","children":["Emailing an invoice is clearly an improvement over sending a bill by snail mail. For a quicker, more seamless process there's also software that can send invoices to your customers automatically."]},{"component":"h2","props":{"id":"5-not-properly-planning-for-tax-season"},"children":["5. Not properly planning for tax season"]},{"component":"p","children":[{"component":"a","props":{"href":"https://www.businessnewsdaily.com/9657-best-online-tax-software.html","rel":"nofollow"},"children":["Do-it-yourself tax software"]}," may be good for preparing a simple tax return, which could be a tempting solution for small businesses looking to save money on an accountant or other tax specialist."]},{"component":"p","children":["Even those tackling their small business tax filing using the DIY approach can stumble if they haven't taken the steps along the way to properly document their company's finances."]},{"component":"p","children":["No one enjoys struggling to piece together all manner of receipts and documents required to file an accurate tax return in April because they made the mistake of not being organized the other 11 months of the year. And that goes double for businesses, which must navigate a more complicated route to be in compliance with Uncle Sam's increasingly complex tax laws."]},{"component":"p","children":["It's not surprising that while more than 93% of small businesses say they are",{"component":"a","props":{"href":"https://clutch.co/accounting/resources/small-business-accounting-tips-2018","target":"_blank","rel":"noopener nofollow"},"children":[" very or somewhat confident in their ability to file their taxes accurately"]},", nearly one-third also says they believe they end up paying too much come tax time, according to a survey by Clutch."]},{"component":"p","children":["Everyone gets complacent about receipts and records now and again. The best approach is to minimize errors and oversights by ensuring that your business is using an accounting system that seamlessly tracks company expenses, payroll and other basic components of your business's profit and loss statement."]},{"component":"p","children":["Enlisting a qualified tax professional to check in periodically and do tax-related organizing sweeps of your business can also help spot potential savings or even things that your business could be doing differently well before the tax year is over."]},{"component":"h2","props":{"id":"6-failing-to-classify-employees-properly"},"children":["6. Failing to classify employees properly"]},{"component":"p","children":["Small businesses rely on employees, freelancers, independent contractors, and gig economy workers, to get the job done. How they classify these individuals could result in lawsuits and tax penalties if they do it wrong."]},{"component":"p","children":["If a small business owner misclassifies an employee, it means federal and state governments miss out on payroll taxes and the penalties for that could be \"substantial\" according to the ",{"component":"a","props":{"href":"https://www.dol.gov/agencies/whd/flsa/misclassification","target":"_blank","rel":"noopener nofollow"},"children":["Department of Labor"]},". Business owners may be on the hook to cover payroll, Social Security, unemployment and Medicare taxes for employees it misclassified. The business can also get hit with penalties and face lawsuits if employees are aren't reimbursed and provided benefits under the ",{"component":"a","props":{"href":"https://www.dol.gov/agencies/whd/compliance-assistance/handy-reference-guide-flsa","target":"_blank","rel":"noopener nofollow"},"children":["Fair Labor Standards Act"]},"."]},{"component":"p","children":["To avoid misclassifying employees, first ",{"component":"Link","props":{"href":"https://www.business.com/articles/1099-vs-w2/"},"children":["determine if they are considered an employee or contractor"]}," by the job they perform, how they are paid, and what their relationship is with your company. If the employee works eight hours a day, five days a week, is paid a salary and receives health benefits, he or she is a full-time employee. If the person works and gets paid on a project basis and isn't provided any benefits, he or she should probably be classified as a contractor."]},{"component":"p","children":["Once you've made that determination, make sure the worker fills out the correct documentation based on their classification. A contractor fills out a ",{"component":"a","props":{"href":"https://www.irs.gov/forms-pubs/about-form-w-9","target":"_blank","rel":"noopener nofollow"},"children":["W-9 form"]}," while a full-time employee completes a ",{"component":"Link","props":{"href":"https://www.business.com/articles/w4-form-instructions/"},"children":["W-4 form"]},". ",{"component":"strong","children":["[Read related article: "]},{"component":"Link","props":{"href":"https://www.business.com/articles/contractors-vs-employees-benefits-and-drawbacks/"},"children":[{"component":"strong","children":["When to Hire a Full-Time Employee vs. Contractor"]}]},{"component":"strong","children":["]"]}]},{"component":"p","children":["If you run afoul of the rules there are some remedies. If you can prove to the IRS ",{"component":"a","props":{"href":"https://www.irs.gov/pub/irs-pdf/p1976.pdf","target":"_blank","rel":"noopener nofollow"},"children":["\"reasonable basis claim,\""]}," you can get relief. You need to prove one of the following to be eligible:"]},{"component":"ul","children":[{"component":"li","children":["You reasonably relied on a tax-related court case or ruling by the IRS to make your classification determination."]},{"component":"li","children":["Your business was audited by the IRS at a time when the employees in question were treated similar to independent contractors and the IRS didn’t reclassify the workers."]},{"component":"li","children":["You treated your workers as independent contractors because the rest of the industry does so, and you can prove that."]},{"component":"li","children":["You relied on the advice of a lawyer or accountant who knows about your business."]}]},{"component":"h2","props":{"id":"7-going-paperless-without-a-backup"},"children":["7. Going paperless without a backup"]},{"component":"p","children":["The last thing a small business owner wants to ",{"component":"a","props":{"href":"https://www.businessnewsdaily.com/4300-what-is-a-tax-audit.html","rel":"nofollow"},"children":["go through is a tax audit"]},". But if you do have to, the more paperwork you have the better off you'll be. In this digital age where everything lives in the cloud or on an app, it's understandable that people don't save their paperwork for a few weeks, let alone seven years, but the IRS will want it during an audit. A good rule of thumb is to save the following documents for at least seven years:"]},{"component":"ul","children":[{"component":"li","children":["Business tax returns"]},{"component":"li","children":["Payroll tax records"]},{"component":"li","children":["Current employee information"]},{"component":"li","children":["Business ownership records"]},{"component":"li","children":["Accountant records"]},{"component":"li","children":["Records from operations"]}]},{"component":"p","children":[{"component":"i","children":["Additional reporting by Donna Fuscaldo."]}]}]},"resource":null,"sponsorship":{"sponsorType":"no-sponsor","name":null,"thumbnail":null,"bio":null,"slug":null,"status":null,"social":{"website":null,"linkedin":null,"twitter":null,"facebook":null}},"thumbnail":{"path":"https://staging.business.com/images/content/5d6/967e67b4374cb2e8b4578/1500-0-","caption":"Jirapong Manustrong/Getty Images","isBlurred":false},"bestPicks":null},"related":{"relatedArticles":[{"title":"Accounting Software Features and Benefits: A Guide for SMBs","canonical":"https://www.business.com/articles/features-of-accounting-software/","slug":"features-of-accounting-software","thumbnail":"https://www.business.com/images/content/5d0/b9ac35a215efe5d8b456b/1500-0-","dek":"Accounting software helps you record the flow of your company's money and examine your financial condition.","lastModified":"2020-02-19T13:20:00Z","published":"2014-06-13T21:46:00Z","sponsored":false},{"title":"SBA Loan Default: A Complete Guide for 2020 and Beyond","canonical":"https://www.business.com/articles/sba-loan-default-guide/","slug":"sba-loan-default-guide","thumbnail":"https://www.business.com/images/content/5dc/047af7b437483068b4572/1500-0-","dek":"Here's comprehensive guide to all your questions about SBA loan default, forgiveness and the SBA Offer In Compromise.","lastModified":"2019-11-04T15:00:00Z","published":"2019-11-04T15:00:00Z","sponsored":false},{"title":"How to Do Payroll","canonical":"https://www.business.com/articles/how-to-do-payroll/","slug":"how-to-do-payroll","thumbnail":"https://www.business.com/images/content/5d9/366c07b4374c76a8b4572/1500-0-","dek":"Our step-by-step guide will teach you how to process payroll yourself.","lastModified":"2020-08-17T20:17:00Z","published":"2019-10-02T12:30:00Z","sponsored":false},{"title":"8 Accounting Tips All Small Businesses Should Know","canonical":"https://www.business.com/articles/small-business-accounting/","slug":"small-business-accounting","thumbnail":"https://www.business.com/images/content/5dc/8d7947b43745e4c8b4576/1500-0-","dek":"Even if it isn't your forte, you still need to know the basics of accounting to ensure your business is being run right.","lastModified":"2019-11-12T15:00:00Z","published":"2019-11-12T15:00:00Z","sponsored":false},{"title":"Dollars & Sense: How to Build an Accounting System for Startups","canonical":"https://www.business.com/articles/dollars-and-sense-how-to-build-an-accounting-system-for-startups/","slug":"dollars-and-sense-how-to-build-an-accounting-system-for-startups","thumbnail":"https://www.business.com/images/content/5e9/887f99c658a711a8b45b5/1500-0-","dek":"Having a robust accounting system in place right in the early stages of the business helps you build a strong foundation for your business.","lastModified":"2020-04-16T21:57:00Z","published":"2015-03-06T20:00:00Z","sponsored":false},{"title":"How to Improve Your Financial Literacy","canonical":"https://www.business.com/articles/improving-entrepreneur-financial-literacy/","slug":"improving-entrepreneur-financial-literacy","thumbnail":"https://www.business.com/images/content/5ec/557f25a215e0d168b4577/1500-0-","dek":"Entrepreneurs must develop financial literacy, a critical skill set for business growth, profitability and success. 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