With small businesses, resources are often in shortage. Reducing the time and effort you spend operationally on accounting and financial management processes can help you save time and money in the long run. Small business proprietors frequently overlook little things that can significantly impact their company to save time and conserve resources. One such area is managing the business’ bookkeeping finances. If done right, it can give you the financial flexibility you need; it can be done wrong and can drain the business operationally. Here are five common accounting mistakes that analysts make.
Using Generalized Financial Statements
If analysts take the time to read the finances, they likely digest them through a third-party provider. The problem with this approach is that each service modifies each company’s unique financial statements to fit into a pre-created template. These services ensure comparability across companies, industries, and nations.
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. 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.
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 income statement’s temporal dimension, balance sheet, and cash-flow statement are all altered? The income statement is stated quarterly for the year’s first three quarters. 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.
Not Adjusting Statements for Distortions
It is a classic problem in financial statement analysis. Despite this, most analysts do not amend financial statements to adjust for one-time items, including write-offs, sales of divisions, and accounting revisions. Precisely, what to look for is outside the scope of this article, but most analysts 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, not the actual loss. Consequently, you can expect future corrections to this initial write-off estimate.
Not Reading the Footnotes
Lastly, despite all the warnings to pay attention to the information 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 would be taking the detailed property, plant, and equipment figures reported in the footnotes and incorporating them into the entire balance sheet analysis. It was once taught that a company was playing games with its useful expected lives figure because when looking 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 significantly affected the reported depreciation, 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.
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