Accounting mistakes for small businesses
Bad accounting practices can distort the reality of your company’s fiscal health. Repeating the accounting mistakes and bad accounting practices can lead your business toward insolvency or company administration in severe cases.
In this article, we willthrow light onsome of the most common business accounting errors and explain how they can create issues, both small and significant, for your business.
1. Assuming profits before deliverance always mean cash flow
You just closed a $70,000 deal that will take your company three months to fulfil. It’s going to cost your business $30,000 to fund the project, so you book a $40,000 profit on the deal before you’ve delivered anything.
Big mistake. There would be an issue if the deal, rather than taking three months, takes additional three months of delays? What if your costs increase, making the $30,000 costs estimate inaccurate and unworthy?
It is tempting to assume each deal as income when it happens—after all, it’s new income for your business. But doing so can make your company seem falsely healthier than it really is and give you a distorted picture of your company’s real condition.
Do not make assumptions but get a clear report and segregation of time, income, and costs with your financial planner/accountant.
2. Not taking bookkeeping seriously
The key to effective accounting is recording and reporting everything. From small transactions to large payments from customers and clients, it is necessary to ensure that everything is recorded, reported, and properly categorized in your financials.
No matter how small your company might be, taking accounting seriously gives you an accurate, reliable picture of your company’s health and cash-flow forecast, letting you determine exactly how well (or poorly) you have performed in each time which defines proper bookkeeping.
From categorizing and aiming different types of assets and liabilities correctly to performing a monthly check of your books and accounts, establishing a serious bookkeeping and accounting system for your business is the key to keeping it financially secure.
Business planning should not be complicated. Plan, fund and grow your business with a simple financial measurement.
3. Failing to specify employees and contractors
Does your business have employees? If yes, are they employees of your business, or people and you have hired on contract basis? There is a big difference between an employee and a contractor—a difference that you will need to account for.
Understanding the crucial difference between an employee and a contractor, as well as the accounting consequences of this difference, is vital to avoid your business recording its accounts inaccurately.
You can leverage the achievements by giving your employees and contractors the task defined according to them, this help can be done by Dobiz Solutions effectively.
4. Managing all your accounting in-house
Do you handle all your bookkeeping and accounting in-house? When you run an extremely small business with small revenue, it can be tempting to lower the costs by handling your accounting on your own.
While keeping accounting to yourselves, it could be costing you money. An accountant will have greater costs than managing your accounts by yourself but will also save you money.
From tax deductions that you did not know about to errors that are difficult to see with your level of insight, but is easy for an expert to notice, managing all your accounting in-house blinds you with limited expertise to budget effectively.
5. Failing to reconcile books with bank accounts
It is important that your business reconciles its accounts frequently. Reconciling is the process of checking that an account balance as listed on your books is accurate and correct, ensuring that it matches the true balance of your bank account.
Reconciling the accounts from your business’s bank cash to its payable accounts, lets you accurately track your financial situation.
Small businesses should always reconcile their books every month to ensure all their transactions are accurately recorded, preventing their books from becoming out of sync with the real status of their accounts.
6. Forgetting to record small transactions
How does your business manage its small transactions? It is very easy to think of petty cash transactions as unimportant, but it is essential that your business has a record of all its spending, no matter how insignificant they are.
It is also important to record small transactions like paying for a postal delivery, even if the cost is insignificant, but keeping the records helps you acknowledge the petty transactions can pile up into big expense and control it later.
Manage small transactions and it becomes far easier to manage the bigger ones. By keeping a record of small transactions, you will be able to easily manage your books as your company grows and its number of transactions increases.
7. Poor communication with your bookkeeper
Every information should be clearly communicated to bookkeeping.
Small mistakes like purchasing products or services—especially those with monthly recurring costs—and not reporting this to your bookkeeper can end up causing serious problems and lots of extra work further down the line.
Clearly communicating with your bookkeeper, keeping a paper record of all transactions, whether the record is digitized or otherwise, makes it easier to monitor all your income and spending.
8. Not assigning clear budgets to each project
Going into a project without an idea of how much it could end up costing your company is an easy way to end up spending far more than intended.
Failing to budget effectively also makes it difficult for you to win in a project that has clearly cost your company more than it should have. This can cause your company to spend its limited funds on projects that will not produce a return on investment.
As your business becomes more established, you will be aware of how much your business needs to spend to continue operating. This makes it easy to set budgets for projects that are large enough to make profits possible, but excessive expenditure can be stopped by your accountant.
Do not make mistakes handling the financials of your company yourself, let the expert handle all the harder tasks.
Contact Us :
Dobiz Corporate Solutions
Address : 30 Craven Court, Glebeland Road Camberley Surrey GU15 3BS
Phone : 0731-4812127
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