For many small business owners, accounting is a cause of great stress and concern. It’s true, not everyone has the same aptitude or experience when it comes to the financial side of a business. What’s more, keeping track of statements, receipts and expenses is often the last thing any owner wants to think about!
However, accounting is at the very core of improvement in any small business. Mistakes have an adverse impact in this regard and accurate bookkeeping is necessary for growth. With this in mind, let’s take a look at five common accounting mistakes for small businesses.
5 Common Accounting Mistakes for Small Businesses
- Falling Behind on Bookkeeping Entries
Keeping up with transactions is a common thorn in the side and often one that small business owners ignore. In other words, this frustrating task is often viewed as something that can wait and this means it’s easy to fall behind in terms of bookkeeping entries or reconciling any statements etc.
But how might this affect a small business?
Without accurate data and information, a business is unable to make informed decisions. This inability will likely end up costing the business money, not to mention the time it takes to rectify the issue. In case you might be asking yourself, even a few days of missed entries can create confusion as most business owners have far too much on their mind to recall transactions from days gone by.
- Failing to Understand the Intricacies of Small Business Accounting
Small business accounting requires the same extent of understanding as with a large organization. For instance, owners need to understand certain terminology and processes in order to practice good bookkeeping for their business. Whether this refers to the reconciliation of statements or the many tax requirements/implications, a business owner simply won’t know where to start. What’s more, without this knowledge, it’s common for owners to overlook aspects of accounting that not only leave the business liable, but also without any direction in terms of how to grow/improve.
- Ignoring the Importance of Choosing the Right Accountant
When funds and margins are tight, it makes sense to look for ways to save on business expenses. However, trying to save money by “doing your own accounting” is a terribly risky approach for any small business. In fact, small business owners are more likely to lose money with this strategy, for you simply cannot expect to achieve the same level of competence as a professional accountant. It should also be said that hiring a substandard accountant is another potential pitfall and you can only benefit in the long run by seeking a reliable and trustworthy accountant for your business.
- Interpreting Bookkeeping Records Without Proper Insight
While it’s necessary to know the relevant terminology, it’s equally important to know how to properly read a profit and loss balance sheet. For instance, even if you have accurate bookkeeping records, there’s no guarantee that you know how to interpret or take advantage of this document.
Hiring a professional accountant not only provides you with this document but also the guidance you need to gain insight and improve profit margins. After all, you cannot fix what you do not know and an experienced accountant will ensure that you can use this data to your advantage.
- Downplaying the Significance of Every Digit and Detail
It’s probably the most obvious mistake but even the smallest inaccuracies can entirely skew your bookkeeping. Simply put, professional accountants don’t make these kinds of mistakes and ensure every last detail and digit is in the right place. When it comes to small business accounting, an independent accountant will also ensure everything is on time and above board. Yes, you might resent your accountant for pestering you about a certain receipt or expense but these temporary measures and minor details will save your business time and money, and the daily frustrations associated with small business accounting.
Professional bookkeeping is necessary for growing and improving any small business. Without sufficient accounting knowledge and experience, there is really no way to secure the long term success of a small business. Either way, these are just a few of the most common mistakes and reasons for owners to reconsider their approach to small business accounting.