Common Accounting Errors Made By Small Businesses
Posted: Jun 10, 2016
If you run a small business it is important to develop good bookkeeping habits from day one. This will make it simpler to manage your business finances, which will save you time and money.
Poor accounting habits will cost you more time and effort later on to correct, which both equate to money one way or another. So take a look at some of the most common accounting errors that small businesses make and learn how to avoid them with this advice for a small business.
Putting it off
Recording all of your business income, expenses and outgoings, whatever way you choose to do it is not the favourite task of many people (book-keepers and accountants expcepted I suppose) so many people put it off. And then they forget about it, and then the trouble begins at year end when you can't find the information you need or the books don't tally with the bank accounts. Sure there is always something you would rather be doing for your business but accurate records are a must for any type of business and if you put it off it will take longer in the end. So get into the good habit of updating your records from the start. Set aside some time every week or day (or whatever is most appropriate for your business) and update those records. This way you will always have an up-to-date grasp of your business' profitability.Inaccuracies
Of course, it's all very well getting into the habit of regular accounts updates very week but those updates do need to be accurate otherwise you can't reap the benefits of knowing where your business stands financially. If you really can't handle figures then get someone to do it for you like an accountant or even just a book-keeper if your business is small. No one ever said you had to be good with accounts to be a successful entrepreneur.
And accuracy doesn't just mean that the monetary figures are right; it also means that income and outgoings are categorised properly. Try and keep it as simple as possible but use a robust mechanism, which could be a reliable software package or even just a spreadsheet; many expenses can be grouped and don't necessarily need fine detail (unless, of course, that is helpful to you as a business owner for other reasons such as targeted marketing for instance).
Remember failing to accurately log all expenses could mean that you are paying more tax than you need to.Inconsistencies
One of the things that can unnecessarily complicate your records is where you do not treat similar items in the same way – or even the same items in the same way! All regular payments should always be categorised in the same way as the same payments from previous months. And if you decide to change the way the categorisation is done mid-way through your financial year then make sure you go back over the earlier records from that same year. Don't forget that having to go back over your accounts at the end of the year to find forgotten inconsistencies will cost you time and money.Doing it all manually
There are plenty of great software packages to make it easier for business owners to keep accurate accounts so you don't have to enter every transaction manually. Ask for a recommendation from an accountant as they will know which applications suit your business best. Some tools will even scan your receipts and downloadable bank statements make cross checking easy.
The author has written and published articles on a wide range of topics including Small Business Advice, Tax and Accounting, Interior Design, House Renovation and Project Management.