Accounting can be tricky. Even great accountants can make mistakes but they can be avoided. Here are 14 accounting mistakes that put your small business at risk.
1. Falling Behind in Entries and Reconciliation
Bookkeeping has a momentum. Lose that momentum and you'll lag behind trying to cope up with outdated accounting records. Business decisions are tougher to make without reliable current information which is why it is important to keep the bookkeeping momentum.
2. Struggling to Be Accounting Software Savvy
For budding business owners who rush into the fray without being able to get properly acquainted with the necessary accounting software, you're likely missing out on useful functionality. This lack of savvy may lead to the inefficient use of the accounting software which then causes incomplete information resulting in bad business decisions.
3. Not Seeing the Reports for the Tools
Some people mistake accounting as merely a tool for legal and formality purposes. They fail to see it as a tool for measuring the business's performance like profitability, maintaining cash flow, accounts payable aging, and accounts receivable aging.
4. Mixing Business and Personal Finances
Business and personal finance must be separate. This helps provide a more accurate record of transactions made for business and ones made for personal use. It is better to have separate accounts in order to truly see the business as a separate entity from the owner.
5. Trashing Receipts
Receipts are necessary for serving as proof to validate transactions on a company's books. Authorities may deem certain entries as invalid if there is lack of proof. Receipts also help clear up any mistake made during the bookkeeping process.
6. Making Math Mistakes
Bookkeeping works like dominos stacked in a line, the slightest error may cause the whole thing to end up in a larger web of errors. One of the common mistakes that businessmen encounter is math mistakes. Even when using accounting software, these errors may crop up occasionally which is why it's important to regularly check the books for accuracy.
7. Focusing Only on the Short Term
Some people lack vision. These people usually don't do well in business. Even though they may get caught up in the day-to-day grind, good businessmen don't get fixated on the short term. They know how to follow their vision for the business.
8. Hiring the Wrong Person
Hiring the wrong person may amount to detrimental matters to the business. Many businessmen make the mistake of hiring a family member or even themselves with the intent to save up on the costs of hiring a professional accountant. This may actually cost more in accounting errors than the money it initially saves in hiring costs so it is best to get the help of the right accounting professional to keep things working smoothly.
9. Thinking Technology Is Always the Solution
Purchasing the best and most complex software suite available will not always guarantee perfect accounting. Small business does not need expensive enterprise accounting systems to operate. Instead they could procure a simpler system fit for their business. This would lessen the costs and would likely increase efficiency for the accountants.
10. Assuming profits always mean cash flow
Booking each deal as an income before it happens is often seen as a mistake. The future is always uncertain. What if your deal encounters a delay which ends up costing you more? That would mean that the recorded transaction amount would be incorrect causing trouble for your accounting team which is why each transaction must only be recorded once they are completed.
11. Failing to specify employees and contractors
There is a difference between employees and contractors. Knowing how to identify both can go a long way to avoiding inaccuracies in the company's chart of accounts and, subsequently, the company books.
12. Not assigning clear budgets to each project
Effective budgets help businesses spend efficiently. Ineffective budgets make businesses spend a bit more or a bit less than intended. It is important to have a clear and effective budget so that every coin spent will be spent wisely.
13. Not taking bookkeeping seriously enough
Taking bookkeeping seriously gives you an accurate and reliable picture of the health of your company. It helps you gauge the company's performance and which areas of the business you are to improve.
14. Failing to reconcile books with bank accounts
It is important that you regularly reconcile your business records with your bank accounts. This helps you keep track of all the small costs and expenses that might sometimes go unrecorded.
March 10, 2017