Save costs? Avoid these seven accounting blunders! July 4, 2021 – Posted in: Accounting – Tags: Accounting, money
How do you prevent the 7 most common accounting blunders?
Such a shame… you see your hard-earned money partly going up in smoke. And only because, like many freelancers, you make accounting blunders. Do you want to keep money in your own pocket and save costs? Then avoid these seven accounting blunders and make sure you don’t make mistakes. Good luck!
In addition to unnecessary accounting errors such as sloppy bookkeeping, errors in invoicing or not using deductions for entrepreneurs, there are plenty of other accounting blunders to mention. Rompslomp spoke about this with financial expert Femke Hogema of Profit First . Femke explains complex financial matters in an accessible manner. “In my books, but also during Profit First trainings and lectures that I offer to small entrepreneurs. My mission is that all entrepreneurs have a financially healthy and profitable business.”
1: Postponing accounting is the biggest accounting blunder
According to Femke, number 1 in accounting blunders: postponing the accounting. “Once a quarter, because self-employed people complete the VAT return must do. Or worse, once a year… I sometimes compare it to picking socks from the laundry. I’ll give you two pairs of socks, two red and two blue. It takes you two seconds per set. Now I’ll give you 6,000 socks and ask you to make 3,000 sets. Then it might take you twenty minutes per set! That’s exactly what goes wrong in accounting. If you keep your bookkeeping on a daily or weekly basis, it’s like matching two to ten socks. If you leave the administration behind, it will cost you ten times as much time (and therefore money) per transaction. In addition, it causes frustration. That costs you energy. Energy you would otherwise use to help customers and make money! It can really take days to resolve the chaos in your administration. And sometimes it can’t be solved never again. That also costs you really hard euros.”
2: Advance VAT
“What entrepreneurs often do not realize is that the moment of payment of VAT depends on the invoice date. An example: you file a quarterly VAT return and send an invoice on 31 March. You have to pay the VAT on that invoice in April. Does your customer pay the bill late? Then you must advance the VAT. This is at the expense of your salary and you may not be able to pay your suppliers yourself! Prevent this accounting blunder and send the same invoice on April 1 (so 1 day later!). Then you only have to pay in July. 3 months later!”
3: It’s not about making money
“I regularly hear: ‘As long as I do what I’m good at, the money will follow.’ I believe that if you want to be a successful entrepreneur, the first step is to embrace the phenomenon of ‘making money’. Just like everything that comes with it. Accounting, calculating your prices, negotiating. You have to take the financial responsibility to make a profit. I think that’s really wrong. Then self-employed people say: ‘Yes, but I want to help people…’ Of course, I also want to help people. But you have two variants. If you don’t want to make money with it, it’s a hobby. If you want to make money, it is a business and you have to embrace the financial side. Many entrepreneurs do not dare to say that they want to earn money and get stuck at a hobby level.”
4: Hope that profit remains
“As far as I’m concerned, a real accounting blunder is that entrepreneurs hope that there will be a profit left over. That’s not happening! That’s Parkinson’s law. This law tells us that we use the available space, in time, but certainly also in money. Suppose you have four hours to complete an assignment. You use this time completely, to research, to produce and in between you are also distracted. But suppose your available time is only two hours because, for example, you unexpectedly have to pick up children from school. Then you can suddenly complete the assignment in two hours. Same quality, but in less time! You work more efficiently and more focused. Parkinson’s law also applies to money. The moment we hope that there is money left over at the end of the day, there is usually nothing left. We always find a way to spend money. If you make $60,000, you also need $60,000 to run your business. If you earn € 80,000 that year, then miraculously you also need € 80,000. You have to manage that. If you don’t, you will never have a good income and you will never be able to pay the tax in peace. Because then the money for the tax authorities will also run out. One solution is to let Parkinson’s law work for you instead of against you. Reserve money for you Because then the money for the tax authorities will also run out. One solution is to let Parkinson’s law work for you instead of against you. Reserve money for you Because then the money for the tax authorities will also run out. One solution is to let Parkinson’s law work for you instead of against you. Reserve money for you
profit , your salary and the tax authorities. You can run your business from what is left.”
5: Don’t think about income tax
“We all know it’s coming and yet we sit tight, waiting for the blue envelope to fall on the doormat. And we are sometimes shocked by the amount. As you may have learned in accounting in high school, That’s a really big accounting blunder. It’s really not necessary. A good bookkeeper or accountant will tell you every quarter what amount you should reserve for income tax. If your accountant does not do this, arrange it yourself. For this you can very well follow online training courses, for example Income tax for the self-employed. So you know how much tax you have to pay.
6: Placing responsibility with the accountant
“Many freelancers place the responsibility for the correctness of the figures with their accountant. Because that’s what you pay for, right? But watch out! Dutch law states that the entrepreneur himself is responsible for the correctness of the figures and the tax return. That means if you have a sloppy bookkeeper who makes mistakes, you’re screwed. And not the accountant! Make sure you understand the numbers and keep an eye on whether everything is going well. So you have to be a bit financially intelligent. You don’t have to be a bookkeeper, but you do need to be able to ask the right questions. Do not underestimate how many mistakes accountants make and how often they forget to enter a deduction, for example. That could easily save you a few thousand euros!”
7: Looking at what you would earn in paid employment
“The last bookkeeping blunder that I see all too often in practice is that self-employed people take their former monthly income as a salaried employee as a starting point. Then they would earn € 25 per hour as an employee, now € 60 and they think they are walking in… But then they overlook the costs of entrepreneurship! After all, as a self-employed person you have to build up your own pension, you have to build up a buffer in case you become incapacitated for work, pay an AOV insurance, you have operating costs… All of this must be included in your hourly rate. Just like holidays and holiday pay. Self-employed people underestimate what they need if they only look at what they earned in paid employment.”