5 Bookkeeping Mistakes Small Businesses Should Avoid
Many business owners are of the opinion that accounting is a fairly simple process and don’t spare the adequate attention that it deserves. But, poor accounting and bookkeeping practices can adversely affect the financial health of any organisation. In many cases, recurring bookkeeping mistakes can lead your business towards insolvency.
So, here are 5 of those common bookkeeping mistakes that small businesses should avoid at all cost to ensure smooth operations.
5 Common Bookkeeping Mistakes
1. Not devoting enough time to the bookkeeping processProper accounting is one of the determinants of the success of your small business. It’s crucial to ensure that every financial transaction is properly recorded and categorised in your accounts, whether it’s a small payment or a hefty transaction from customers and clients.
Irrespective of how small your organisation is, taking the bookkeeping process seriously provides you with an accurate insight of your company’s prosperity and allows you to learn exactly how well (or poorly) you’ve performed within a particular span.
2. Not keeping a record of small purchasesEven the most accomplished business owners sometimes forget to keep track of their business transactions. While it may not sound like a huge issue if a meal ticket is missing, but these small purchases can mount up if ignored continuously. Also, you wouldn’t want the government breathing down your neck to check if you have claimed expenses, and don’t have any evidence to justify them.
Being aware of the small transactions ultimately makes it easier to deal with the bigger ones. This way, you’ll find it easier to maintain your books as your organisation grows in size and the number of transaction increases.
3. Being overly dependent on an accounting softwareMany bookkeeping errors actually emerge from oversights that could be easily detected and rectified through a manual audit. Now, it isn’t uncommon for small businesses to completely bypass them because they’re too dependent on their accounting software.
Small businesses are required to carry out proper financial audits to look for bookkeeping mistakes in their spreadsheets, or for errors that the software failed to catch. The sooner you realise that not all mistakes will be rectified by any accounting software, the higher your chances of maintaining an error-free bookkeeping record.
4. Failing to carry out basic account reconciliationSettling your business’ books with the bank statement every month is a responsibility that you must perform.
Account reconciliation is quite simple to carry out. You have to compare your books with your bank statement and ensure that there is no disparity. In case you find any error, get in touch your bank immediately to resolve the issue. Carrying this process out on a monthly basis allows you to ensure that bookkeeping errors are successfully eliminated before they lead to a major financial setback.
5. Not knowing the distinction between cash flow and profitsA small business can have positive cash flow within a short span and yet be unprofitable. Again, it can experience a negative short-term cash flow but still emerge as profitable in the long haul. The first situation is common among small businesses as they often need to pay the suppliers before they receive payment from their consumers.
To get a clear picture of your organisation’s true financial standing at all times, you need to liaise with an accountant so that they can prepare the financial statements regularly. These comprise of a balance sheet, profit and loss statement, and income statement, which should be presented at least quarterly.
TakeawaysYou will no doubt come across one of these costly accounting and bookkeeping mistakes, if not all of them while carrying out your business operations. Make sure that you learn thoroughly about accounting, or else hire a professional, and always be watchful of the possible red flags.
Need help with Bookkeeping for your business? Contact Numbers & Co. today!
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