The problem with accounting is that even the smallest of mistakes can eventually compound and become a giant problem. In fact, it usually takes far more time to correct an accounting error than to get it right in the first place. With that in mind, we’ve put together a list of the six most common accounting mistakes for small business owners to avoid.
1. Failing to Create a Business Budget
As a business owner, it’s your job to steer your company towards profitability and this is very difficult to do without a budget to keep your bottom line in check. Creating and regularly reviewing a business budget reduces overspending, helps to create realistic financial goals and provides a benchmark against which to measure your progress. It essentially functions as a roadmap. Without it, you may soon find yourself lost.
2. Ignoring Accounting Procedures
It may not be your idea of fun, but it’s important to set up formal procedures for managing accounting and bookkeeping tasks within your business. It’s a good idea to create standardised forms to ensure consistency across the board. This will ensure that your information stays accurate and avoid problematic gaps in your records later on.
3. Missing Data Entry Errors
In an ideal world, there would be no data entry errors to miss in the first place. Unfortunately, as it is, it’s impossible to completely prevent data entry mistakes. What you can do, however, is perform reconciliations regularly so that you catch said errors as quickly as possible, before they start to cause bigger problems. Make a habit of reviewing unusual transactions, too.
4. The DIY Approach
As a business owner, you wear many hats and it’s only natural to want to do everything yourself but this approach is neither profitable nor sustainable. Your time is an important resource, so wasting it on low-value tasks that you could easily outsource is not conducive to business growth. Outsourcing these tasks will free up your time and allow you to focus on generating more revenue.
Furthermore, it’s often prudent to outsource to those with more expertise than you. Tax accountants, for example, undergo years of training and are far better versed in the intricacies of tax law than you are. Therefore, outsourcing tax planning and preparation is a very smart move for the financial health of your small business.
5. Not Backing Up Accounting Software
Ask any IT expert and they’ll tell you that backups are essential; you never know when disaster could strike. Backing up your data could save you a huge amount of time and money in the event that your data is lost or corrupted. Fortunately, many cloud accounting programs allow you to create automatic backups at regular intervals. You should also double-check your backup files regularly to ensure that they are in good working order.
6. Shoebox Accounting
If your small business has more than a few small transactions each year, then the shoebox accounting method is a very bad idea. It’s important to stay on top of your accounts and keep a careful track of all of the funds that enter and leave your business throughout the year. Fail to do so, and submitting your tax return will be a nightmare. You may even end up paying more than you need to. Investing in accounting software and seeking the help of a professional accountant are smart moves that will greatly improve the financial health of your business.
Summary: Think Long Term
Business is a long game and it’s important to retain this mentality when it comes to accounting, too. It pays to be prepared and plan ahead; shoebox accounting and leaving things until the last minute will only land you in hot water. By avoiding the above six accounting mistakes, you can save your business both time and money, and get back to focusing on growth.
