Accounting Mistakes that could ruin your small business
Accounting in a small business involves keeping the books to identify waste, fraud, theft and tax purposes. In order to ensure your business remain successful and saves money in the long run, it is important for entrepreneurs to hire professional accountants. Most owners might prefer to do it themselves or delegate to other staff which can be detrimental to the business, successful companies have gone broke due to fraud, theft, unpaid taxes and even embezzlement.
Some of the most common accounting mistakes that small business owners make include entering data incorrectly, not documenting expenses and income or just basic math errors. Here is how to fix some of the bookkeeping mistakes.
Disorganization
Organization is a priority in accounting. Document and keep records of everything, use the business credit and debit cards for expenses and keep receipts for all expenditures. Maintain updated books and be sure to note down petty cash expenses the moment you incur them. Do not mix personal and business finance, while this may be unavoidable at some instances, be sure to indicate it as a loan to the business and get receipts on the same. Auditors will rarely challenge expenses supported by receipts.
Putting of the paperwork
Business owners especially during the beginning are forced to wear many hats to get a good hold of the business. Postponing to update your books might seem trivial but may affect the business in big ways. Avoid getting behind on filing reports, bill payments, invoicing clients and the financial statements which can lead to increased debts, bounced checks, and mistakes that you might not be able to iron out after time has passed. Always keep your books current not to miss out on financial opportunities.
Math Errors
Entering the wrong date or figures in the wrong place, rounding off incorrectly could cost you dearly in terms of paying taxes or hurt your small business finances. This is where professional accountants come in.
Hiring the right staff
This point cannot be stressed enough, delegating your book keeping to unqualified staff is one of the major mistakes that small businesses make. If the people you have put in charge of your accounts do not know what they are doing, your business will be the one to pay for those errors. Besides, not everyone has your best interest at heart and they may not be invested so much in the business to care on correcting errors and ensuring the books run smoothly.
Be willing to delegate
Small business owners are hesitant to delegate since they may feel like they are giving out power to experienced professionals. However, your business growth and ultimate success will depend on your ability to involve professionals who will handle the parts of your business that you may not be competent to manage.
The business will benefit more when you focus on what you are good at and allowing others to do their jobs. Expert advice is required for maximizing income.
Communication
Keep a clear line of communication between yourself and your book keeper to avoid accounting mistakes like filing records and reports which will affect the financial data. Reconcile statements and note down any expenses like employee bonus or cash discount.
Bookkeeping tips to avoid Accounting Mistakes
Tracking Receivables
Your small business could be losing revenue by not tracking receivables, your business could have good potential for revenue with little to no money coming in. create a system of managing outstanding invoices to avoid losing money on some accounts which can in turn mean looking for a loan to cover expenses. Consider investing in invoicing software that can send reminders to clients such as Vyapar
Tracking Purchases and expenses
Not tracking expenses, payments or bills and fees will result in discrepancy between the money you are spending thinking you have and the actual amount in your business accounts. Start by tracking small purchases that adds up over time including petty cash to avoid misuse.
Validate your purchases and income
One of the danger of messy book keeping is overpaying taxes. Inaccurate record of business expenses could mean more deductions that your business have to.
Bottom line
While there are many ways to prevent accounting mistakes, the person entering the numbers should do so correctly and be able to interpret assets, taxes and other financial matters. But more so, that person should be a professional accountant.
Make clear record keeping a priority to avoid rushing to complete books for financial transaction which could mean making mistakes in a hurry that will waste more of your time correcting or cost your business dearly. Keeping organized records everytime will you give a clear picture of the business income, expenses, profits and cash flow.