6 Common Accounting Errors to Avoid for Small Business Owners
If you’ve ever made an error in financial reporting for your small business, you know how expensive, time-consuming and annoying the errors can be.
Protect your small business by avoiding some of the most common accounting errors! Here are 6 tips to improve your accounting processes.
Don’t Make These 6 Accounting Errors
You’re constantly handling transactions, cash is flowing in and out of your business, so it’s no wonder some things fall through the cracks.
Omissions in business expenses can throw off your books and cause big issues. Measuring profitability and accurately filing your taxes can be jeopardized by just a single omission.
Pay special attention to recording each transaction. Set up appropriate accounts to deal with different types of expenses. For example, you can have one account for small expenses, and another specifically for large expenses like restocking inventory.
Even the seemingly inconsequential expenses make a difference.
2. Confusing Net Profit & Cash Flow
Net profit and cash flow are not the same thing and should be treated separately.
Net profit is how much money you’re making AFTER you’ve paid your expenses. Calculate net profit by subtracting total expenses from total sales dollars.
Cash flow depicts the money coming in and out of your business.
Understanding the difference is important because it can explains discrepancies between profit and available funds. An example would be when you invoice a customer but don’t receive immediate payment.
3. Not Reconciling
Reconcile your books regularly to ensure your bank statement and accounting records are in agreement. Simple to fix accounting errors can go unnoticed for long periods of time if you’re not regularly reconciling your books.
When tax season rolls around you’ll be in good shape for filing. You will also avoid costly and lengthy delays from have to correct errors occurring months prior.
4. Not Budgeting
Small businesses need to be especially cognizant of budgeting, as they’re typically working with more limited funds. A budget will help to avoid overspending and keep your money on track.
Budgeting takes out the guesswork, so you can focus on future spending and expenses to meet your profit goals. Use your budget to plan projects, set prices and manage expenses.
5. Incorrect Balance Sheet
A common error in managing accounts occurs between identifying what is an asset and what is a liability. In short, an asset is classified as a credit while liabilities are debits.
Pay attention to where you are posting your entries. Misclassifying accounts, duplicating entries or posting to incorrect amount can create unnecessary work and stress.
Aim to check your balance sheet at least monthly. You should be checking for correct balances for your assets and liabilities; if there is an error, consult the details of each account.
6. Doing It All on Your Own
Many small business owners are wary to relinquish control over any part of their business, especially when it comes to finances. And, it makes sense when you’ve put everything you have into your passion and business, you want it done right!
If managing your finances is exceeding your bandwidth or the pressure is too much, consider hiring a professional.
With the time you’ll save on accounting, you can dedicate it to other areas of your business, like customer service, team development or product development.
We understand accounting for small business owners because we are small business owners, ourselves.
Ask us about our customized accounting services and how we can cater our service to your needs.