Along with their other duties as a leader of a small business, there will be a need to oversee the finances of the company – in other words, a business owner has to attend to the accounts. Since bad accounting can lead to big mistakes that can cost the company dearly and, at worst, halt business altogether, it’s important to get it right.
Landscapers who don’t keep procurment records correctly, solopreneurs who lose invoices or receipts intermittently, and any small business that fails to reconcile its accounts from time to time will soon find themselves swimming to stay afloat. Here are six accounting make-or-break problems for small enterprise, and how to avoid them. 1. Recording and storing payments and invoices correctly 2. Properly tracking the allocation of funds 3. Reconciling accounts frequently 4. Waiting too long to collect outstanding payments 5. Failing to maximise on-time payments or discounts 6. Neglecting good cash management techniques.
Not Keeping Accurate Records
Financial management is the crucial cog in the running ofany successful business, but it cannot survive if there are any littlefootprints left by accountancy hiccups. Inadequate record-keeping is probably the most serious mistake small business owners make. Whether through poor execution of bookkeeping or just a lack of attention, accounts are often incorrectly maintained, and both financial reporting and the number of deductions claimed are often understated. As a consequence, you should insist on keeping digital records of income and expenses to stay on top of the accounts, separate your business finances from your personal ones, reconcile bank statements regularly, and get professional advice when needed. New business owners, who are used to working in less structured roles, are likely to make costly mistakes balancing their business needs with handling the accounting themselves. You can avoid these common errors in the accounting of small businesses, and those below, by hiring an accountant or bookkeeper as soon as possible; small business accounting errors and how to avoid them:
Not Reconciling Accounts Regularly
One of the more frequent mistakes that small businesses can make is failing to perform a bank reconciliation on a regular basis (which is a process of comparing which amount shows up in your bank and the amount showing up on your books). Don’t make this expensive mistake – open separate bank and credit accounts for personal and business expenses, keep invoices and receipts in one folder and use accounting software to track income and expenses. Running a small business is not an easy task. Mistakes may occur during its initial operation and must be rectified to ensure the business remains operational and successful; therefore accurate bookkeeping practice, storing digital archives in secure locations, backing copies of files must be updated regularly and professional accountant / bookkeeper job is highly recommended to keep the business afloat.
Not Keeping Track of Reimbursable Expenses
The way your business is managed plays a huge part in its success. Even small errors can jeopardise a business’s financial health, and leave it vulnerable to expensive fines or penalties.
Have a policy that spells out expenses that can be reimbursed, and structure your reimbursement process so that everyone is bound by the same rules. This can cut down on confusion and disputes and, more significantly, help you avoid mistakes that can be costly, such as overstating your revenue or paying too much to the tax department.
Keeping your personal finances separate from those of your company, using accounting software, taking receipts and forwarding invoices regularly, reconciling your accounts regularly, developing and using budgets or forecasting models to maintain a headquarters state of stability, and seeking professional advice all help to keep your company afloat.
Not Keeping a Budget
Maybe accounting is one of the more daunting aspects of running a business, but without reliable accounting practices, no business will be sound financially, or have the potential for growth. There are some basic, yet important, factors that small business owners must learn and follow to avoid accounting mistakes. Small business owners could explore investing in accounting software, keeping personal finances and business finances separate, keeping receipts on a regular basis for reconciling accounts and coming up with a plan for tax obligations and paying yearly taxes. Having professional advice from accounting specialists could be ideal. Keeping records consistently can be one of the biggest obstacles for small-business owners. Inaccurate financial records and tax filings can result from inconsistent record keeping, including unorganised receipts. The following errors can be prevented by using dedicated bank accounts and credit cards for business expenses, recording purchases as they are made, and keeping track of receipts using programs that can help with this.
Not Keeping Track of Profit & Loss Statements
A profit and loss statement of a company (formally known as an income statement) gives them a clear overview of their revenues earned, expenses made and net income, at a certain period of time. They can make more efficient decisions on ways like increasing price or lowering expenses, when they know this kind of information. Receipt-capturing apps and accounting software that automatically categorises expenses can be helpful here, but they should never replace basic bookkeeping. One way of ensuring that your financial information about your company is true is to conduct spot-checks, such as verifying that expenses have been categorised correctly. Reviewing profit and loss statements on the regular is also essential. On a schedule that corresponds to when new profits and losses appear – perhaps on a quarterly or six-monthly basis – look at the data and see what patterns emerge to make smart decisions about where to take your business.
