Small business
accounting is an organized process which helps in keeping track of the
financial activities of a company. Bookkeeping, on the other hand, is a
systematic process of keeping a record of every single company transaction.
Both the processes are intertwined and important as bookkeeping offers valuable
data and accounting empowers the company to make useful business decisions.
However, in an attempt
to handle accounting in-house, it is not uncommon for small businesses to make
accounting mistakes. This article will discuss the mistakes of small business
accounting and ways you can mitigate these risks.
8 Small Business
Accounting Mistakes to Avoid
Poor accounting habits
often prove costly to the business because it leads to money loss and places a question
on company administration. Read on to understand the mistakes that small
businesses should avoid.
Considering Profits as
Cash Flow
You have achieved a
deal of USD 50,000. From this, UDS 15,000 is your cost price. So, does this
mean USD 35,000 is your profit, as in your cash flow?
Not necessarily. If
the project suffers an unexpected delay, your cost price increases. In fact,
even if your company loses an efficient employee, your cost price increases.
Don’t mistake your
estimated profits with cash flow. Only assess this once you have successfully
closed the project or you have evaluated the estimated overheads.
Ignoring Bookkeeping
Remembering
transactions is not similar to bookkeeping. This activity is designed to give
you a clear picture of the financial health of your company. Hence, maintain
proper books and record every transaction, no matter how small or big it is.
Handling Accounting
In-house
While you may be
thinking that handling accounting in-house can save your budget, it may be
actually increasing your overheads. An accountant is trained to handle your
bills, invoices, books, and other financial obligations. In fact, an
experienced team may be able to help you reduce your overheads and avoid
non-compliance. Handling things in-house can lead to delays, improper
calculations, and other mistakes discussed in this article.
Hiring Wrong Outsourcing
Partner
If you are outsourcing
your accounting, then having a wrong partner can also increase your troubles.
You may face poor communications and delayed responses. This happens when your
partner is not trained or doesn’t have experienced staff to handle accounting.
Before working with any outsourcing partner, get a clear knowledge of the team
you will be working with and the experience of the partner.
Mathematical Errors
If your team makes
mathematical errors, you can face grave consequences. A single wrong
calculation can traverse to multiple other aspects. When you input these
figures in an official system i.e. filing taxes, you can face penalties for
these faults.
Having a proper system
and tool for calculating without mistakes is necessary to maintain small
business accounting integrity.
Poor Reconciliation
Reconciliation means
calibrating your bank accounts with books. When businesses fail to achieve
this, small transactions can be easily left unrecorded. This will not allow you
to understand the exact financial status of your business. In fact, you won’t
be able to allocate a budget correctly for these small transactions such as
office stationery.
Poor Collaboration
If the collaboration
between your bookkeeper, accountant, and the office manager is not appropriate,
a lot of things can go wrong. From inaccurate reports to reconciliation errors,
anything can go haywire.
Utilize experienced
people, proper accounting software, and a smooth communication channel for
better management.
Ignoring Paperwork
One of the most common
small business accounting mistakes is delaying paperwork. Not sending the
bills, delaying invoices, and not reconciling debts can severely cripple the
financial structure of your organization.
Keep your books and
paperwork updated every day to avoid losing money and facing penalties.
Conclusion
It is hard to manage
small business accounting single-handedly. When you try managing accounting
without any prior experience, you can end up making the above mistakes. Hence,
read carefully and avoid falling prey to accounting blunders.
About
OHI is a specialized finance and accounting outsourcing service provider with over fifteen years of
finance and accounting outsourcing experience. We have strong functional
outsourcing expertise in end to end accounting processes covering daily
accounting activities, reconciliations, month end and year-end account
finalization processes, employee reimbursements, payroll processing, management
reporting and financial analysis.
OHI serves close to
300+ clients across USA, UK and Canada. We invite you to experience finance and
accounting outsourcing through us.
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