As a corporate proprietor, it is imperative to be involved in all aspects of your operation. Although, that does not mean that you must be an expert in every aspect. Business holders may wear those strategic and customer-relations hats well, but many have a difficult time with the accounting piece of the business. Even worse, financial mistakes can significantly hinder growth or adversely impact your bottom line. Accounting errors can impede cash flow, attract undue attention from the Internal Revenue Service (IRS), or damage relationships with suppliers, customers, and staff.
To avoid those situations, listed below are 10 accounting mistakes business owners tend to make and the reasons why these errors can be so harmful.
1. Falling Behind in Entries and Reconciliation
Time is not on the side of the small business proprietor, especially when there may be daily issues to address. Months can quickly pass without making any entries in the books or reconciling any business checking statements, credit card statements, sales tax accounts, or other financial accounts. This means financial statements and reports are not current, and without up-to-date information, it is challenging to make sound business decisions.
2. Not Understanding Software
In a rush to get the business set up, some business holders may not have spent the time correctly learning the accounting software they have chosen. Not knowing what the bookkeeping software can do means you could make a mistake or miss out on a beneficial functionality. Not setting up a software system properly could also lead to unused reporting capabilities and incomplete information that results in poor business choices.
3. Not Using Reports
Accounting is not just an instrument for entering financial data to achieve state and federal tax protocols or tell you how much money is in the bank. Instead, bookkeeping is a powerful mechanism that provides answers to questions connected to how a business owner’s tactical decisions are functioning or not functioning. As a result, using reports within financial software is vital, and failing to do so can be catastrophic.
4. Mixing Business and Personal Finances
One of the most common accounting mistakes business proprietors make is to mix their business and personal finances. Keep these separate and distinct to provide a more precise track record of what was really used for business and what was specifically related to personal use only.
5. Throwing Away Receipts
Paper trails still count, but even those can become digitized. However, receipts are to be kept so they can be recollected and input into accounting software. Receipts provide solutions to any mistakes or gaps in bookkeeping records, and many offer supplementary deduction opportunities during tax preparation.
6. Making Mathematical Errors
In the haste to get the accounts done after a long day, math mistakes can easily happen, even when using automated accounting solutions. Math mistakes can also result from posting entries to the wrong account or even just making clerical errors.
7. Concentrating on the Short-Term
With the daily matters of running a business, it is easy to become preoccupied with short-term issues and neglect planning for the future. Bookkeeping, though, is not just keeping track of today’s statistics. It is also about estimating future growth and recognizing any financial risk from current financial decisions or results.
8. Hiring the Wrong Person
Hiring the wrong person can create financial problems that go beyond just making uninformed resolutions. Trying to save money by hiring someone with less experience at a lower salary or hiring a loved one to help them out can lead to financial issues, including audits or penalties. Employing the wrong person can create problems that haunt your business for many years to come, so take time and invest in your personnel like you would any other company asset.
9. Thinking Technology is the Answer
Spending money on technology does not guarantee accounting mistakes will be evaded. After all, you still need to make the technology work properly and use it to its fullest. Also, not all technology was created equally in quality or is relevant to your specific business. Find and use the technology that helps you work efficiently.
10. Not Letting Go
Business proprietors may experience circumstances where not seeking professional help is a mistake. For example, you may not want to confess that accounting is not your area of expertise. You likely started a company with an idea or solution that had nothing to do with accounting, and that is where you should focus. However, trying to be responsible for an area that is not your strength can negatively impact your business. Let go of areas you can outsource or seek assistance from experts who can manage troublesome tasks.
Conclusion
Accounting can make or break your business. Learning when to use tools or professionals to help in areas you struggle with can be one of the most significant decisions for a company to make.
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