Accounting is the systemic and comprehensive recording of a business’s financial operations. Business bookkeeping is the recording of financial transactions as part of the accounting process.
The most common area where small business owners make mistakes is in accounting and bookkeeping. Small business accounting mistakes range from minor errors (e.g., saving a minimum amount) to extensive errors, which can seriously threaten the business.
Entrepreneurs and owners often do not see the impact of typical small business accounting mistakes as a major threat to business growth in the long run.
8 Common Small Business Accounting Mistakes that Pose Risk to Business Stability
Business owners mix personal finances with their business accounts.
Business owners mix their finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated, what was intended for business and personally cannot be known. The finances cannot be estimated correctly, and the profit generated from invested capital cannot be calculated.
A business credit card is utilized for personal expenses during a holiday trip or other excursions. Later on, this amount will be paid from the company’s income.
During purchase orders for an inventory of the company, purchases are also made for personal or private use.
Trying to manage all accounting and bookkeeping yourself
A small business owner is often an all-rounder. They constantly try to manage all business functions themselves. Accounting and bookkeeping are hectic and time-consuming jobs. If you spend all your time accounting and bookkeeping, you will miss other essential business operations.
If you have an accountant to manage this, you will keep a second eye on accounting and bookkeeping and free up time for other areas.
Infrequent bookkeeping.
Entries are not done in time. Running behind in bookkeeping and submitting entries of the expenses or sales will not yield an up-to-date picture of the business and allow you to make timely decisions. It can lead to a negative balance if payments are made, but no income statement is updated.
Invoices that the company is supposed to pay may go unnoticed, which can give your company a bad name. It can also end terms with suppliers, halting or significantly reducing business growth.
Covering small expenses out of pocket without recording.
Sometimes, paying minor expenses with your own money in business is more accessible. Often, these payments are small and not entered into the bookkeeping record. Paying out of your pocket falsely makes your company appear firmer in income than it is.
Starting new projects and ideas without a clear budget.
If you start a new project in your business without planning for it, you can run short of your budget for other business operations. You may have to quit the project while doing it if you don’t get the loan or find other investors. It’s always best to plan before you make a big move.
You are not saving the original receipts after entering them into the register/books.
It is essential to keep all receipts until all taxes are paid and an audit is conducted. Even after that period, receipts are significant for matching data entries in a register or software.
Not using accounting software or cloud technology.
Failing to set up the correct software as needed by your company leads to poor decision-making. Installing improper software (more complicated than required or lacking crucial functions) can lead to more complexity in accounting. Accounting software prevents accounting and bookkeeping errors.
Many software applications come with guided help boxes to make the accounting process more accessible to interpret. Inventory control tools are provided in the software. Tax matters are made easier using accounting software. It’s best to make the jump for your company and purchase the best software for your company. 
Wrong interpretation of accounting information.
Accounting information software is just a tool to use. After thoroughly checking the financial reports and interpreting the data, decisions must be made. Data is interpreted by comparing financial statements with the cash flow statements and the balance sheets.
Entrepreneurs/business owners/directors must focus on the long-term consequences of their decisions after getting a complete picture of the company’s accounting information. Short-term decisions after the interpretation of account data do not provide the company with long-term benefits.
Conclusion
Small business accounting mistakes are not small and can dissolve the business in the long run. A trained professional should manage Accounting and bookkeeping tasks, and you must closely monitor your accounting and bookkeeping data. Use accounting software for bookkeeping. Do not mix personal expenses with the business account or pay out of pocket for business expenses. These small mistakes lead to big problems for your business in the long run.
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