Posts

Confused upset young man working on computer
With small businesses, resources are often in shortage. Reducing the time and effort you spend operationally on processes like accounting and financial management can help you save time and money in the long run. In an effort to save time and conserve resources, small business proprietors frequently overlook little things that can make a huge impact on their company. One such area is managing the business’ bookkeeping finances. If done right, it can give you the financial flexibility you need; done wrong and it can be a drain on the business operationally. Here are five common accounting mistakes that analysts make.

1.  Using Generalized Financial Statements

If analysts take the time to actually read the finances, it is likely that they digest them through a third-party provider. The problem with this approach is that each of these services modifies each company’s unique financial statements to fit into a pre-created template. These services do this to ensure comparability across companies, industries, and nations.

2.  Not Understanding the Reflexivity/Interactivity of the Three Major Financial Statements

Few analysts take the time to trace the dollar of capital raised within a company through the income statement to the bottom line and then back to the balance sheet again. Nor do they relate changes in the balance sheet accounts to the cash-flow statement to identify huge inconsistencies in either amounts or categorizations. Instead, most analysts investigate the statements in isolation from one another.

3.  Not Creating Apples-to-Apples Comparisons in Time

This particular accounting secret is one that people rarely discuss publicly. Specifically, have you ever noticed that the temporal dimension of the income statement, balance sheet, and cash-flow statement are all altered? The income statement is stated quarterly for the first three quarters of the year and then annually, however, the balance sheet is always reported as a quarterly snapshot — even when it is the fourth quarter. Last, the cash-flow statement is always shown as an accretion of cumulative cash for the year. Each of these is very different from one another and they only align in the first quarter for any company. Companies usually play games with these time dimension mismatches. Consequently, analysts must put all of the financial statements on the same temporal dimension.

4.  Not Adjusting Statements for Distortions

This is a classic problem in financial statement analysis. Despite this fact, most analysts do not amend financial statements to adjust for one-time items, including write-offs, sales of divisions, accounting revisions, and so forth. Precisely what to look for is outside the scope of this article, but most analysts simply do not take the time to do this. As a brief tip, if you ever see a write-off number that is a bit too round, such as $500 million or $75 million, you can bet that the amount is management’s estimate of a loss and not the actual loss. Consequently, you can expect future corrections to this initial write-off estimate.

5.  Not Reading the Footnotes

Lastly, in spite of all of the warnings to pay attention to the information contained in footnotes, most analysts do not read them. Nor do most analysts take the numbers from the footnotes and put them into the main three bookkeeping financial statements.

An example of this would be to take the detailed property, plant, and equipment figures reported in the footnotes and incorporate these into the analysis of the entire balance sheet. It was once taught that a company was playing games with its useful expected lives figure because when looked at the common-size over assets financial ratios, it could see that one of their property, plant, and equipment numbers had gone down massively on a relative basis. This distortion, in turn, had big ramifications for the reported depreciation and hence net income, operating cash flow, and free cash flow.

Conclusion

While there are many other accounting mistakes that analysts can make, if you correct those highlighted above, it is believed that you will successfully separate yourself from your analyst peers and improve your returns.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Shocked and surprised boy on the internet with laptop computer concept for amazement, astonishment, making a mistake, stunned and speechless or seeing something he shouldn't see
While accounting software has made bookkeeping and accounting less stressful for businesses, it has also caused accounting mistakes to be much more common — from erroneously classifying a transaction to doing all of the accounting yourself. Some mistakes are minor, immaterial, and easy to correct without harmful consequences. However, some mistakes are more serious and could have a significant effect on your business’s financial position. Over time, meager accounting practices can garble the authenticity of your company’s fiscal position. In more severe cases, recurrent mistakes and bad accounting practices can lead your business towards insolvency or liquidation. Below are some of the most common errors that businesses make while handling their accounting.

Common Accounting Mistakes

Assuming that Profits mean Cash Flow

Positive cash flow is essential for the survival of any business and they try hard to maintain the flow of cash in and out of business. While the purpose of a business is to make profits which ultimately result in positive cash flow, it is a mistake to assume that the profits will result in cash flow.

Your business may have taken a project that costs you around $10,000 while the estimated profits are $25,000 and the completion time is 2 months. If everything goes according to plan, you will generate positive cash flow. However, any delays in the project can cost you more than the estimates. Therefore, assuming the positive relation of profits with cash flows can be one of your biggest accounting mistakes.

Disorganized Bookkeeping Practices

Effectively managing your accounting needs requires you to record everything, from small petty cash expenses to large business transactions. This will ensure that you have an account of every single financial detail of your business. It doesn’t matter if your business is small or large, taking accounting seriously will ensure that you have updated and accurate records and a reorganized picture of your company’s financial position, which will eventually help you in better decision making. From classifying various types of assets and liabilities properly to accomplishing a monthly check of your book, launching a serious accounting system for your business is the key to keeping it financially secure and avoiding accounting mistakes.

Managing All of your Accounting Needs In-House

For small businesses, it can be tempting to handle all of their accounting needs in-house in order to save costs because of limited budgets. However, if you are not efficient or a pro at it, you might be costing your business some valuable cash instead of saving it. Outsourcing your accounting to professionals can ensure that the bookkeeping needs are catered professionally. You might think that this is costing you more than it would if you had taken it upon yourself to do the job. However, this might actually save you more in the form of well-managed books without any accounting mistakes.

There are certain tasks, such filing tax returns and other specified needs of the business, that require professional competency and failing to realize the importance of handling these tasks can result in severe consequences. A mistake in filing your taxes can result in fines and bad credit scores, which is something you must avoid at all costs.

Poor Communication

Often, the downfall of businesses is a lack of communication between the bookkeeper and owner. Poor communication can cause mistakes in reconciling the statements, filing reports, and inaccurate financial information. The job of your bookkeeper is to guide you in making key decisions about your company’s future and, for that, you need to develop a healthy relationship with the individual.

Even with the efficient use of technology, some accounting mistakes cannot be avoided because of the “garbage in, garbage out” rule. Whatever is entered into the accounting software will come out eventually in the form of information. So, if someone has inaccurately entered the data, the technology cannot help you in any way possible. Together, you and your bookkeeper will ensure that everything that is entered into the accounting tool is accurate and thoroughly discussed, without any communication gaps.

Conclusion

Avoiding these accounting mistakes is critical to the success of your business and maintaining a solid reputation.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

 

 

 

 

 

 

Young businessman asks for help at work
As a corporate proprietor, it is imperative to be involved in all aspects of your operation. Although, that doesn’t mean that you must be an expert at everything. Business holders may wear those strategic and customer-relations hats well, but many have a more difficult time with the accounting side of the business. Even worse, financial mistakes can truly exploit growth or adversely impact your bottom line. It can clog cash flow, attract undue attention from the IRS, or hurt reputations with suppliers, customers, and staff.

To avoid those situations, listed below are 10 accounting mistakes business owners are prone to making and the reasons why these errors can be so harmful.

1.    Falling Behind in Entries and Reconciliation

Time is definitely not on the side of the small business proprietor, especially when there may be daily fires to put out. Rapidly, months can pass without making any entries in the books or reconciling any business checking statements, credit card statements, sales tax accounts or other types of financial accounts. This means financial statements and reports are not current. Without up-to-date information, it is challenging to make sound business decisions.

2.   Struggling to Be Accounting Software Shrewd

In a rush to get the business set up, some business holders may not have spent the time to correctly learn the accounting software they have chosen. Not knowing what the bookkeeping software is capable of doing means you could certainly make a mistake or miss out on some powerful functionality. Not setting up a software system properly could also lead to unused reporting capability and incomplete information that results in bad business choices.

3.    Not Seeing the Reports for the Tools

Accounting is not just an instrument for entering financial data in order 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.

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 kept, the point is that they need to be recollected. Receipts provide solutions to any mistakes or gaps in bookkeeping records and many offer supplementary deduction opportunities come tax time.

6.    Making Math Mistakes

In the haste to get the accounts done after a long day, math mistakes can happen quite effortlessly, even when you are using automated accounting solutions. Math mistakes can also result from posting entries to the wrong account or even just making typos.

7.    Concentrating Only on the Short Term

With the day-to-day matters of running a business, it is easy to preoccupy in the short term and completely forget about the future. Bookkeeping, though, is not just keeping track of today’s statistics. It’s also about estimating future growth and recognizing any financial risk from current financial decisions or results.

8.    Hiring the Wrong Person

The wrong person can create financial problems that go beyond just making uninformed resolutions. In reality, trying to save money or help a loved one out can truly lead to audits or penalties. Employing the wrong person can create issues that haunt your business for many years to come.

9.    Thinking Technology Is Always the Answer

Tossing money at technology does not guarantee accounting mistakes will be evaded. After all, you still need to make the technology work properly. Also, not all technology was generated equally or is relevant to a specific business.

10.   Not Letting Go

As a business proprietor, there are circumstances where not getting professional help is a major blunder. It is okay to confess that accounting may not be your area of expertise. You likely started a company with a great idea or solution that had nothing to do with accounting and that is where you should focus.

Conclusion

The financial side of running an industry 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 biggest make or break decisions for a company.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Stressed business woman running out of money - stock and market down
Accounting is the systemic and comprehensive recording of financial operations in a business. Business bookkeeping is the recording of financial transactions as a 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. to save a receipt of minimum amount) to big accounting and bookkeeping errors which cause serious threats to the business.

Entrepreneurs/owners often do not see the impact of the common small business accounting mistakes as a major threat to the growth of business in the long run.

8 Common Small Business Accounting Mistakes that Pose Risk to Business Stability

  1. Business owners mix personal finances with their business account

  • Business owners mix their personal finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated then it cannot be known what was intended for business and what was used personally. The finances cannot be estimated correctly and the amount of profit generated out of 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 inventory of the company, purchases are also made for personal or private use.

  1. 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 of your time in accounting and bookkeeping, you will miss doing other important business operations.
  • If you have an accountant to manage this, you will be able to keep a second eye on accounting and bookkeeping, but also free up time for other areas.

  1. Infrequent bookkeeping

Entries are not done in time. Running behind in bookkeeping and the submission of 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 expenses are made but no income statement is updated. Invoices to be paid by the company may go unnoticed and it can give your company a bad name. It can end terms with the suppliers. Business growth is halted or significantly reduced.

  1. Covering small expenses out of pocket without recording

Sometimes, it’s easier to pay small expenses out with your own money in business. And, often, these payments are small and not entered into the bookkeeping record.

Paying out of your pocket falsely makes your company appear stronger in income than it actually is.

  1. Starting new projects and ideas without a clear budget

If you start a new project in your business without planning for it, then you can run short of your budget for other business operations. You may have to quit the project in the midst of doing it if you don’t get the loan or find other investors.  It’s always best to plan ahead before you make a big move.

  1. Not saving the original receipts after entering them register/books

Keeping all receipts until all taxes are paid and an audit is produced is a must. Even after that time period, receipts are very important for matching data entries in a register or in software.

  1. Not using accounting software or cloud technology

Failing to set up a correct software as needed by your company leads to poor decision making, because installing the improper (more complicated than required or lacking crucial functions) software 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 easier 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. 

  1. Wrong interpretation of accounting information

  • Accounting information software is just a tool to use. Decisions must be made after completely checking the financial reports and interpreting the data. Data interpretation is made by comparing financial statements with the cash flow statements and the balance sheets.
  • Entrepreneurs/business owners/directors must focus on long-term consequences of decisions they make after getting a full picture of the company’s accounting information. Short term decisions after interpretation of accounts 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.  Accounting and bookkeeping tasks should be managed by a trained professional and you must closely monitor your accounting and bookkeeping data. Use accounting software for bookkeeping. Neither mix personal expenses with the business account, nor pay out of pocket for business expenses. These small mistakes lead to big problems in the long run for your business.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Businessman being depressed by accounting in his office
Accounting and bookkeeping are the key functions in any business. Accounting is the systemic and comprehensive recording of financial operations in a business. Business bookkeeping is the recording of financial transactions as a part of the accounting process.

Entrepreneurs/owners often do not realize that common small business accounting problems are a major threat to the growth of their business in the long run.

5 Common Small Business Accounting Problems Killing Small Businesses

 

YOU DO NOT USE AN ACCOUNTING SOFTWARE

Manual work is always the hardest and is at major risk of errors. A small accounting error can lead to big losses in the business. An accounting software according to your business size is as important as funding your business. Small business owners can also get a specific software to meet their needs depending on company specifics.

Working on a spreadsheet is not as productive as working on an accounting software.

An important and challenging step in business is to choose the proper software per your business needs. Consider its cost, usability and extra features for choosing a suitable software for your small business.

Features of an accounting software must include

  • Inventory management
  • Sales tracking
  • Contacts management and contact history tracking
  • Account to accept credit card payments
  • Generating Invoices
  • Financial statements, cash flow statements and balance sheet
  • Budget planning
  • Payrolls
  • Taxation matters

FINANCIALS ARE NOT PRODUCED MONTHLY

In a small business, it is often thought appropriate to produce financials on a quarterly or bi-annually basis. However, monthly financials show investors you are closely monitoring your business.

It can lead to a negative balance if expenses are incurred but the income statement is not updated. Invoices that need to be paid may go unnoticed and it can lead to a bad reputation for the company. It can end terms with the suppliers. Business growth could even be halted or significantly reduced.

Not producing financial statements on a  monthly basis is a common problem that small businesses encounter.

FINANCIALS ARE INCORRECT

Incorrect financials is a threatening small business accounting problem in your business. If your financials are incorrect, it may sink your funding round in your business.

Any error in financial statements leads to big losses. Business bookkeeping and other business operations will be a disaster if you do not keep your financial data up to date. Your accounting statements must be clear and transparent. Income and expense statements must be clear and related to cash flow and balance sheets. Also, delayed data entry can be a big risk for frauds.

BUSINESS OWNERS MIX THIER PERSONAL FINANCES WITH BUSINESS ACCOUNTS

Business owners often mix their personal finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated then what was intended for business vs personal matters will be intertwined, leading to problems. The profit that was generated out of invested capital cannot be estimated correctly.

Often, a business credit card is utilized for personal expenses. Later on, this amount will be paid from the company’s income.

During purchase orders for inventory of the company, purchases are also made for personal or private use.

Covering small business expense out of pocket without recording it happens often as it can be easier.  However, if it is not on the bookkeeping record, the income of your company could appear larger than it actually is. 

 

PAYROLL ISSUES

Small business owners must organize their payroll section or their company could go into debt with increasing interest.  You can enlist the help of payroll companies to avoid errors. 

Conclusion

Small business accounting problems start with infrequent bookkeeping and accounting functions. This will not give a true picture of the business and leads to the inability to make wise decisions for the company. Failure to use an accounting software may lead to manual errors that are unintentional. When running into accounting problems, small business owners may have to get loans to pay for timely expenses such as paying for the salaries of their employees. If small business owners focus on these small business accounting problems, their businesses can be stable and experience exponential growth.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.