Accounting is paramount in any business process, no matter how big or small. The idea of clearly recording all financial transactions of a company can make a difference in the overall business success.
After all, money is its lifeline. Unfortunately, some small business owners tend to commit common accounting mistakes. While this is inevitable as small-scale companies have yet to learn and grow, make sure these mistakes are avoided as much as possible.
Why? Accounting helps maintain the financial health of your company and can be instrumental to your overall business success. Any single mistake can compromise your financial status. In this article, we will share with you four common accounting mistakes that small businesses should avoid at all costs.
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1. Self-handling Accounting and Bookkeeping Tasks
One mistake that small business owners can commit is to handle accounting and bookkeeping all by themselves. You are under the impression that as the business owner, you should only be the one in control of your money. If you’re a professional accountant, then there’s nothing to worry about.
If you are not, however, that is where all financial problems possibly arise. It’s best to leave your finances to expert accountants while you focus on growing your business.
2. No Reconciliation of Books and Bank Statements
As a small business, will you or your hired accountant perform bank reconciliation? A bank reconciliation is a process of matching the balances in your accounting records to the corresponding information on bank statements. Doing this is essential to avoid any financial discrepancies and fraudulent transactions.
It is a vital facet of accurate bookkeeping. If you do not reconcile your books and bank statements properly, keep in mind that you are putting your company’s finances at risk.
3. Not Recording Small Out-of-pocket Expenses
It’s very important to record every financial transaction your business makes, even small out-of-pocket expenses. If it is those minor expenses, it’s a common practice for small business owners to cover those costs. Think about minor bills and insignificant expenses that can quickly be paid for independently.
Know that failure to record even small transactions can lead to inaccurate financial records when it’s time for reports. As a result, your books or accounting records won’t reflect the actual status of your company’s financial health.
4. No Clear Budget for New Projects
As with any business project and undertaking, planning and setting a budget is a must. Failure to do so can put your company’s finances at risk. Chances are that you won’t be able to sustain the projects in the long run because you have to cut back on your funds.
You will also be investing in things that will not yield any profit in the future. For this reason, it’s best to sit down and assess whether you have enough budget for a project and whether it’s worth investing in financially.
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Conclusion
It’s inevitable for small-scale companies to make small bookkeeping or accounting mistakes. You are good to go as long as they are noticed and corrected. However, grave and frequent mistakes are not excusable, particularly if they cause serious financial repercussions to the company.
Be wary of the four accounting mistakes discussed above. If you often commit mistakes, it’s about time to change your practices or hire trusted professionals to better manage your company’s finances.
Disclaimer: All the information provided in this article on “most common accounting mistakes”, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
