5 Common Accounting Mistakes Small Businesses Makes
Running a small business can be a hectic time with many variables to think about from products to sales to marketing, and if you are doing your own accounting on top of that, it can be all too easy for mistakes to be made.
Those who are new to business might think they can save money by doing all of their own financial management but accounting is a skill in itself and trying to take on too much when you don’t know what you are doing, can cause all kinds of problems.
Some mistakes can be small; others can be the difference between your business succeeding or failing. Ongoing mistaken accounting practices can skew your figures and create significant issues for your company.
Here are some of the most common accounting mistakes which small businesses make so you can avoid making them as well:
Making assumptions about cash flow
Just because you’ve landed a new client, you can’t make assumptions that the money you have planned will actually come in on time. They might be late payers, or the project might go on longer than first thought.
It’s good to have an idea of what’s coming in and what’s going out in your business, but you shouldn’t assume what your cash flow is going to be based on proposed projects and potential new work.
As well as knowing what money is coming in from clients, you need to know what is going out, and the best way to do this is to set budgets in place. Have a budget for advertising and marketing and have a budget for all project costs.
That way you will know exactly what money is due to go out of your business account every month and why, and you won’t be tempted to spend ad-hoc on special offers for advertising or one-off project costs. Setting budgets helps to keep you on track.
Leaving book keeping to the last minute
It’s vital to keep accurate records of all the money coming into and leaving your business account, and the only way to do this is to keep on top of your book keeping. You need to record every business transaction accurately.
If you leave it all to the last minute you might find receipts missing, transactions recorded in the wrong category and your books will be a mess. The key to business success is making sure all of the financial records are up-to-date and correct.
Not understanding employees vs contractors
You need to understand the difference between employing people in your business as employees and using contractors. There are different taxes and financial requirements so make sure you are very clear on the law and very clear on what kind of contracts you are offering.
Trying to do all of your finances yourself
While it’s true that you will have to pay for an accountant to support your business finances, trying to do all of the accounting by yourself is one of the most common mistakes small business owners make.
Even if your business is small and the finance is simple, as you grow and expand it will become more complicated and more time-consuming to manage all of the finances by yourself. You don’t want to be up into the early hours balancing the books so let someone else do it for you. Accounting services offered by companies like Crunch allows small businesses to simplify their accounting needs through their unique approach.
Using cash to buy a set of stamps to post out invoices is still a business transaction, no matter how small and you need to make sure you record every single transaction accurately. It’s all too easy to forget some of these smaller transactions and overlook them.
But if you forget a number of smaller transactions in your books, it will all add up, and your business accounts will quickly be affected and become inaccurate and potentially misleading records of how much money you are actually spending.
Not making sure your books match your bank account
While it’s important to keep records of all of your income and outgoings, it’s also vital to check your records against what is actually on your bank statement. It’s all too easy to overlook small expenses that you might forget about.
You need to make sure your accounting records match with every transaction that shows up on your business bank account so that you have a very clear and accurate picture of your actual real-time business finance.
If you employ a book keeper to help you then you need to tell them everything that goes on within your business and you need to keep records of all transactions and copies of all receipts to give to them at least every month to make sure all the transactions reconcile, so your books always match your bank account.
Cheryl Davis Freelance Writer