For any small business, having an accurate view of your financial health is absolutely crucial.
And, it doesn’t matter whether you’re on the threshold of launching your small business, or if you’re three years into a lifelong project, accounting errors can be all-too-common, and sometimes, they can be all-too-costly.
Some accounting mistakes are minor, insignificant, and, when noticed, they are easily fixed.
Others are more serious, however, and they have the potential to cause serious damage to your labour of love.
And, as some of the best accountants in the top chartered accountant firms can tell you, it usually takes more time to correct a mistake than it takes to get it right the first time.
Knowledge is power and being proactive can save you time and money.
In this article, we’re taking a look at 5 common accounting mistakes that small businesses make so you can avoid them.
Let’s take a closer look.
Table of Contents
1. Underestimating the Importance of Bookkeeping
Successful accounting has one fundamental principle: record everything.
No matter how small your small business is, prioritising your bookkeeping can be the thing that makes all the difference when it comes to your financial health.
From the small, seemingly inconsequential transactions to the larger, more exciting ones, it’s vital that everything is recorded and categorised properly.
Establish a serious accounting system for your business and perform routine checks of the books – monthly, weekly, fortnightly, etc.
2. Working Without a Budget
A budget will prove invaluable in establishing realistic, visible financial objectives for your business.
And, it also works as an important baseline upon which you can judge your operating results.
Ensuring that you have one and monitoring it closely can keep your business on track – in the moment, and, for the future.
3. Not Reconciling Books with Bank Accounts
Reconciling is a means of checking whether the account balance listed on your books accurately reflects the balance of your bank account.
It’s important that your business not only reconciles its accounts, but it needs to do so frequently.
Sometimes, for a variety of reasons, small expenses can go unrecorded. And at other times, small data errors can occur.
Reconciling your accounts lets you accurately track your real financial position, and makes sure that should your accounts are always in sync.
4. Not Properly Categorizing Income and Expenses
In terms of keeping your finances in order, this problem is extremely common, particularly in the early stages of starting a business.
At all times, all money coming in and going out must not only be recorded, but it must be assigned to a category.
Sometimes, small business owners assign money to the wrong category.
Avoiding this mistake is easy if you stay on top of your records.
Knowing who you billed, how much you billed them and who paid who becomes much easier if you are constantly monitoring your books.
5. Failing to OutSoruce
When you run a small business, saving money anywhere you can is a top priority.
But, sometimes, insisting on handling all of your bookkeeping in-house can actually end up costing your business money.
Yes, a chartered accountancy firm will charge you a fee. But, that fee could well pail into insignificance when you consider the savings a professional eye can bring to your books.
From tax deductions that you didn’t know about to financial errors that are difficult to see, managing all of your accounting in-house may actually hamper your financial success rather than enhance it.
Conclusion
So, there you have it.
Keeping your business dreams on track will be bolstered by keeping your accounting in check.
Avoid these common mistakes and focus on your business goals instead.
Your business and your profit margin will thank you for it.