Common Accounting Mistakes Small Business Make
Small business accounting is a standardized process that helps keep track of a company’s financial activities. On the other hand, bookkeeping is a precise process of maintaining a record of every single company transaction. Both the methods are intertwined and relevant as bookkeeping offers valuable data, and accounting empowers the company to make solid business decisions.
Weak accounting methods can distort the truth of your company’s fiscal health. In severe cases, repeated accounting mistakes and poor accounting practices can lead your business toward bankruptcy or company administration. That’s why it is beneficial for business owners to hire expert accountants rather than doing the books themselves or assigning the work to inexperienced staff members. Even thriving companies can quickly go broke because of accounting errors that result in outstanding taxes, fraud, theft or misappropriation.
In this blog, we’ll examine five of the most common small business accounting errors and explain how they can create issues for your business.
1. Lack of organization
In accounting, you need excellent organization skills. That means keeping receipts for all expenses, using business credit or debit cards for payments, having the books up-to-date, recording petty cash expenses accurately and not merging personal and business finances. As a busy business owner, it is natural to pick up supplies while doing your personal buying and errands. However, it is necessary to get separate receipts and use your state resale ID number for any supplies you will resell. When you can show receipts for all your expenditures, auditors are less likely to challenge them.
2. Not following a regular accounting schedule
Every day your business will generate a lot of financial documents. As a business owner, you may feel it is too tedious to note them regularly. Nevertheless, it’s vital to set a regular schedule for adding in current income and expenses. Financial analysis and reporting are one of the bedrock of modern business. Financial accounting and reporting give a level of insight that supports businesses remaining compliant while streamlining their revenue or expenditure-centric initiatives across the board.
3. Not seeking help when needed
One of the most important things to know as a business owner is that you cannot do everything yourself. Maybe you are qualified to manage your bookkeeping and financial tasks. But, as a proprietor of the business, with some help in some fields such as accounting work, you will have more time and energy to explore the more significant development of your business. Consider hiring a professional, so you focus on the most important things. An external accountant can also advise detecting where to reduce expenses and help to prevent potential problems.
4. Assuming profits always mean cash flow
Next on the list is thinking profits always mean cash flow. Say you just sealed a $10,000 deal that will take your business three months to complete. It’s going to cost your company $4,000 to support the plan, so you book a $6,000 profit on the deal before you’ve accomplished anything. It is a big mistake. What if the agreement takes more than three months or runs into an issue that causes an additional three months of delays? What are your costs rising, making the $4,000 costs estimate inaccurate? It’s delightful to write down each deal as income when it happens—after all. It’s new income for your business. But doing so can make your business seem better than it is and give you a distorted picture of your company’s present condition.
5. Not assigning transparent budgets to each project
Does your business start projects without designating each one a clear budget? Working on a project without any idea of how much it could end up costing your company far more than you intended. Not planning efficiently also makes it challenging for you to ace a project that has cost your firm more than it should have. Failing to budget can cause your company to spend its defined funds on projects that won’t provide a return on investment. As your company becomes more stable, you’ll know how much your business needs to spend to continue operating. This experience makes it easy to set budgets for large enough projects to make success possible but not excessive or wasteful.
To avoid these and other accounting mistakes, reach out to JT Comptabilité CPA et Consultation. The professionals in our firm make their clients their priority and strive to provide a service that exceeds their customers’ expectations. We customized our services according to the clients’ personalized needs, growth, and sector of activity. To learn more about the services that we provide, please click here. If you’ve any questions about accounting, get in touch with us by clicking here.