Update: This article was last updated on 17th Feb 2019 to reflect the accuracy and up-to-date information on the page.
Accounting is an essential part of small businesses. Rare are the chances that your accountant commits a mistake. However, human errors are unavoidable. Sometimes certain accounting mistakes that seem to be insignificant can stunt the growth of the company or adversely influence the bottom line, obstruct cash flow, damage reputations with clients and employees.
Thus, having an accurate accounting process isn’t optional when it comes to running a firm. Here is an infographic listing seven of the most common accounting mistakes that the small businesses should avoid, ensuring their businesses run optimally.
Let’s explore in detail –
1. Managing Everything Yourself
Managing a growing firm comes with a lot of challenges, and you need to understand that you cannot do it all by yourself. The other important aspects of your business need your attention to grow. So, it makes more sense to hire a professional to handle all the accounts of the company.
Hiring an accountant may cost more than managing accounts yourself, but it will save money for your business as some errors in tax deductions that are difficult for you to see are easy for an expert to notice.
2. Confusing Cash Flow and Profits
Cash flow and profit are not the same. Cashflow is the money flowing in business at a given point of time and profit is the surplus after subtracting the business costs. If you are confused between cash flow and profit, then your accounts may seem healthier than in reality.
Hence, you have a distorted view of your business’s real condition. It is important to understand how cash inflow and outflow work to get a clear sense of the situation your firm is in.
3. Mixing Personal And Business Finances
While starting a business, you may have used your personal assets as startup capital. However, as the business grows, there should be a clear boundary between personal and business finances.
Having the same personal and business accounts can complicate financial life and can make taxes complicated. The first step when opening a business should be to open a bank account. All business expenses should be run through the same account.
4. Using Outdated Technology
Sticking to the outdated technology may look like cost-saving measures, but it is just the opposite. Using updated technology such as cloud accounting not only lowers the business cost but also speeds up the accounting process.
If you’re not leveraging the latest technology, you run the risks of degrading productivity, increasing security threats, and losing customers to your competitors.
5. Forgetting To Record Small Transactions
You must have a habit of recording all the transactions you make, no matter how small it is. Even the small transactions can put your account out of balance. Let’s say if you spend $10 one day and $40 another day and forget to keep a record. Your business now has $50 less than it had before.
Managing small transactions is difficult because it is easy to overlook these transactions. To have complete control over your business finances, you should record every small or big transaction.
6. Starting A New Project Without A Clear Budget
Project having no budget is like a bird having no wings. Initially planning a budget may look frightening, but eventually, you will know the importance of a detailed breakdown of the budget. A planned budget not only curbs overspending but also can be used to establish realistic financial objectives.
To make projects successful, it is essential to set apt budgets and get continuous real-time updates. Other than this, you should also have a plan if something happens outside the scope of the budget.
7. Not Backing Up The Data
Data backup is important for every business because there are many ways to lose data. Ransomware, accidents, natural disaster, and computer damage are some of the ways data can be lost. It is essential to back up your company’s accounting data regularly.
If your accounting software like QuickBooks is hosted on the cloud, the cloud providers ensure that there is a regular backup of all your accounting data, and you can be rest assured that your accounting data is safe in any scenario.
Do you feel there are any other accounting mistakes that small businesses make? Please share it with us in the comment section below.
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