5 Accounting Oversights for Small Business Owners to Avoid
Failure to have the appropriate accounting processes and controls in place can hamper the growth of your start-up of small company. Regrettably, accounting mistakes are common for new and small business owners. Luckily there are steps that can be taken to help avoid them. I will highlight a few.
1) Failure to Monitor and Collect Accounts Receivables – Making the sale is the exciting part of your business but billing and making sure you collect on them is sometimes a challenge. When you issue an invoice, a receivable is created. A good record-keeping system should provide you with a detailed report of accounts receivable, including current information on customers and a running balance of their accounts. It’s essential that you follow up on all late paying and delinquent customers to convert your sales to cash or ensure that you don’t continue selling to clients that won’t pay.
2) Failure to Track Expenses – Keeping track of your expenses is an important part of the bookkeeping process, and something that should be taken seriously. A bank card or credit card that is used solely for business expenses is a great way to track your expenditures. You can also download phone apps or apply for credit cards that are equipped for businesses that offer the ability to upload receipts and enter information real time for accounting purposes.
3) Not Knowing the Difference Between Profits and Cash Flow – It’s possible for a business to have positive short-term cash flow but not be profitable; it’s also possible to have negative cash flow in the short term and still be profitable long term. The first scenario is common among point-of-sale and cash-based businesses, such as retailers and restaurants, who pay their vendors on terms. The second scenario is common among small businesses because they often have to pay employees and suppliers before they get paid by their customers which can strain cash. To have an accurate picture of your true financial condition at all times, it’s important to produce financial statements or at least a Profit & Loss statement on a quarterly basis (monthly is even better).
4) Not Reconciling Bank Accounts – Reconciling your business’s monthly books with your business bank account is a fundamental accounting duty. Account reconciliation is relatively simple, just compare your books with your bank statement and make sure there are no discrepancies. If there are, follow up with your bank to get them resolved. Doing this on a monthly basis helps ensure that accounting errors are caught and corrected quickly before they result in a major financial issue.
5) Failure to Hire a Tax Professional – Often, Small business owners try to save money by doing taxes themselves. These owners often learn the hard way that that they miss out on claiming deductions they qualify for or might underpay a tax bill which can lead to penalties and other fees. Tax professionals keep up to date on the ever-changing tax laws and help you plan ahead for potential tax increases. Hiring a professional bookkeeper can also help keep your year-end tax costs to a minimum as they do all the prep work. Also, having a second set of eyes on your business performance is never a bad thing, especially when it comes to finances and taxes.
Avoiding these mistakes can help keep your business’s books in order and provide clear and timely visibility of your profitability and performance. Problems will also be identified sooner rather than later to hopefully give enough time to react and fix the issues.
Managing Director, Supporting Strategies