Small business accounting is an organized process which helps in keeping track of the financial activities of a company. Bookkeeping, on the other hand, is a systematic process of keeping a record of every single company transaction. Both the processes are intertwined and important as bookkeeping offers valuable data and accounting empowers the company to make useful business decisions.
However, in an attempt to handle accounting in-house, it is not uncommon for small businesses to make accounting mistakes. This article will discuss the mistakes of small business accounting and ways you can mitigate these risks.
8 Small Business Accounting Mistakes to Avoid
Poor accounting habits often prove costly to the business because it leads to money loss and places a question on company administration. Read on to understand the mistakes that small businesses should avoid.
Considering Profits as Cash Flow
You have achieved a deal of USD 50,000. From this, UDS 15,000 is your cost price. So, does this mean USD 35,000 is your profit, as in your cash flow?
Not necessarily. If the project suffers an unexpected delay, your cost price increases. In fact, even if your company loses an efficient employee, your cost price increases.
Don’t mistake your estimated profits with cash flow. Only assess this once you have successfully closed the project or you have evaluated the estimated overheads.
Remembering transactions is not similar to bookkeeping. This activity is designed to give you a clear picture of the financial health of your company. Hence, maintain proper books and record every transaction, no matter how small or big it is.
Handling Accounting In-house
While you may be thinking that handling accounting in-house can save your budget, it may be actually increasing your overheads. An accountant is trained to handle your bills, invoices, books, and other financial obligations. In fact, an experienced team may be able to help you reduce your overheads and avoid non-compliance. Handling things in-house can lead to delays, improper calculations, and other mistakes discussed in this article.
Hiring Wrong Outsourcing Partner
If you are outsourcing your accounting, then having a wrong partner can also increase your troubles. You may face poor communications and delayed responses. This happens when your partner is not trained or doesn’t have experienced staff to handle accounting. Before working with any outsourcing partner, get a clear knowledge of the team you will be working with and the experience of the partner.
If your team makes mathematical errors, you can face grave consequences. A single wrong calculation can traverse to multiple other aspects. When you input these figures in an official system i.e. filing taxes, you can face penalties for these faults.
Having a proper system and tool for calculating without mistakes is necessary to maintain small business accounting integrity.
Reconciliation means calibrating your bank accounts with books. When businesses fail to achieve this, small transactions can be easily left unrecorded. This will not allow you to understand the exact financial status of your business. In fact, you won’t be able to allocate a budget correctly for these small transactions such as office stationery.
If the collaboration between your bookkeeper, accountant, and the office manager is not appropriate, a lot of things can go wrong. From inaccurate reports to reconciliation errors, anything can go haywire.
Utilize experienced people, proper accounting software, and a smooth communication channel for better management.
One of the most common small business accounting mistakes is delaying paperwork. Not sending the bills, delaying invoices, and not reconciling debts can severely cripple the financial structure of your organization.
Keep your books and paperwork updated every day to avoid losing money and facing penalties.
It is hard to manage small business accounting single-handedly. When you try managing accounting without any prior experience, you can end up making the above mistakes. Hence, read carefully and avoid falling prey to accounting blunders.
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