Many small business owner’s struggles with their accounting. Oftentimes, as a result of minor errors that could easily be avoided. When companies fail to handle their accounting correctly they are placing the brand at risk of increased taxes, frequent audits and costly fines.
However, the majority of account issues can be resolved with simple tactics. Certain methods like using a third party to handle finances and ensuring accurate bookkeeping can mitigate against error. Continue on to the article below for an outline of the most common accounting mistakes and how to avoid making them.
1. Using Profits for Cash
The biggest mistake that company owners make is using profits as cash. This is a critical error that can place the company at risk of mismanaging funds. Mismanagement often results in financial devastation if unexpected issues arise and they cannot fulfil the deal.
To avoid this mistake, it is essential that company owners do not view profit as cash until deals or jobs are complete. This avoids spending money that the company has not yet earned and may need in the future.
2. Incorrect Bookkeeping
Another common issue with small business’s is incorrect bookkeeping. This can prove to be detrimental for companies if they are ever asked to complete an audit but are unable to provide the correct documentation. If a company is unable to provide the government with proof of their claims they can face costly fines, added interest, and possibly jail time.
To prevent this from happening to your business, it is critical to ensure that every transaction is meticulously recorded and saved regardless of how small it is. These records will help to advise the current state of the company and prevent any miscalculations when it comes time to file taxes.
3. In-House Accounting
Small business owners often believe that they can handle the bookkeeping for their business. However, maintaining in-house accounts can be a time-consuming ordeal that results in errors. These errors can cause a mishandling of funds if there is a miscalculation with the budget.
To prevent this from happening to your business, it is recommended to seek the help of a financial advisor or accountant. Using a third party will help to keep saved records of all of your finances. Further, they will be able to record, review and ensure all of the company’s finances are accurate.
4. Poor Communication
Another common error that small business owners make is failing to communicate effectively with their accountants and co-workers. However, forgetting to mention certain expenses and documents can lead to inaccurate budgets and claims.
To prevent this from happening, it is critical to speak openly with those handling the finances. This means that owners should provide detailed information and access to all the necessary documents. Plus, owners should try to give as much information as possible, regardless of how minor they feel the transition may be.
5. Assuming Budgets
The final error that many small business owners make is assuming budgets. This is often the case when company owners are unaware of their financial state. This unawareness typically causes companies to use profits before deals close and work is complete.
To avoid this from happening to your small business, owners need to frequently monitor their finances by checking into their accounts regularly. This will help to keep them updated with their current financial state and prevent any error or assumptions with their income. Finally, it is best that owners speak with an accountant or financial advisor who will be better able to determine and advise on the company’s finances.
Although many small business owners believe that they are able to handle finances on their own, it can quickly become overwhelming. Not only does this leave them at risk of suffering from additional expenses and costly interest rates, but it can lead to financial devastation. If you’re currently struggling to maintain your small business finances, consider speaking with one of our professionals who will be able to assist.
