10 Most Common Small Business Accounting Mistakes
There is a range of accounting applications, softwares, outsourced services available for small or medium size businesses. You can keep track of your financials easily. Small business accounting has especially picked up and more business owners are opting for it every day. There are special packages offered and provisions made which allow them to avail these services for very small monetary compensation.
Keeping track of your financials has never been easier.
Yet, there is still a chance that some errors may occur in small business accounting. You can certainly try to eliminate those errors, make the process smoother. But the possibility is always there. Errors waste time that could have been better spent on growing the business more. That is why it is essential to take a clinical approach towards this problem. The first step is identification of the problems, and properly categorizing them.
We have complied a list of 10 most common mistakes small business accountants have identified, that plague business owners.
1. Failure to Follow Accounting Procedure
Every small business owner should set up formal, documented and detailed procedures for managing bookkeeping. They should develop proper methods every kind of accounting procedure they may encounter in the line of their business. These plans are not formulated overnight. They require deep analysis of your own business structure and management. A proper small business accountant can help immensely in this regard. If a business owner chooses to forgo outside help, they can certainly do it themselves. However, it invites unnecessary trial-and-error method on their part.
We suggest you develop proper standardized forms and checklists to ensure competency, consistency and accuracy.
2. Absence of Budget
Working without a proper budget is an open invitation for business suicide. You must create a budget, so you will have a proper baseline to analyze the results of your business operations. Budget helps in creating a simple and realistic financial picture of your financial health. It helps curb overspending for useless materials or services. Budget allows setting up reasonable financial goals. A budget inadvertently increases revenues and reduces operating expenses.
3. Data Entry Errors
Data entry errors belong to the class of human errors. They occur from time to time. While eliminating them is nigh impossible, as long as there is need of manual entries. However, it is possible to significantly reduce them. you can have contingencies or algorithms in place which detect police the data entries and recognizes the errors. These algorithms can point out those errors and perform various reconciliations between different data nodes, before they become part of finalized financial reports.
4. Failure to Keep a Backup
In case of an accident, natural disaster or something else, your data may be lost. This error is especially prevalent in places which keep physical paper records. The paper can crumble, lose its consistency, becomes damp due to humidity or lost in fire. The online records kept in a single hardcopy may also be lost or become corrupt for any number of reasons. That is why it is essential in small business accounting to maintain an automatic online backup. It must also be kept away from main data banks. Many online accounting softwares, applications allow for this option. Use it.
5. Taking Too Many Responsibilities on You
Many new businessowners fall into this pitfall where they think it is cheaper and easier to keep all operations in-house. It is highly erroneous to think outsourcing costs more than in-house services. Dumping too many tasks on your limited employees, or taking the burden on your own shoulders inviteneedless headaches.
Outsourcing is cheaper than in-house operations.
6. Failure to Categorize Income and Expenses
It is inadvisable in small business accounting to keep a lackadaisical approach in maintenance of income and expenses records. All monetary operations, whether incoming or outgoing, must be recorded and categorized appropriately. Business owners can easily keep track of who owes them what. They can also stay on top of any impending expenses and pay any bills on time. Every single cent is accounted for this way and nothing goes missing.
7. Poor Communication with Bookkeeper
If you have availed help from an outsourced small business accounting service, it is necessary to maintain proper contact with it. Your bookkeeper must know what goes on in your company in real-time basis. Every transaction or financial operation must be recorded and immediately forwarded to them. By poor communication, the risk for an error in financial reports is significantly increased.
8. Failure to Record Small Transactions
Many small business owners deal in petty cash transactions. A small store owner can sell a candy to a child or he can pay for postal delivery without recording it. On the face of it, these transactions seem small and insignificant. However, as your company grows, these small transactions keep increasing in frequency.
A time comes where an accumulation of these unrecorded transactions creates a backlog in your records.
This pitfall must be avoided by maintaining a record of every small transaction, no matter how insignificant it may seem.
9. Proximity Issues
If I were in your place, I would choose a small business accounting service near me. Before I search for any other service, I would concentrate on best accountants near me. Proximity can solve a lot more problems than you may think.
10. Assumed Profits Do Not Mean Cashflow
Making profitable deals with clients where the service or product has yet to be delivered does not result in cash flow. Long-term deals can result in increased costs for the projects. Or the socio-economic conditions of your area may destabilize resulting in failure to deliver. This is how assumed profits become losses where you are bound by your word to deliver regardless of problems. Do not make an entry for a non-finalized deal into profits section.
SG Inc. CPA provides the Best Small Business Accounting Services in Dallas, Texas. Our services are helpful and cheap. Contact us for more information.