Accounting and bookkeeping are the essential jobs in any business. Accounting is the systemic and complete recording of financial operations in a company. Business bookkeeping is recording financial dealings as part of the accounting process.
Small business accounting errors range from minor to significant accounting and bookkeeping errors that negatively impact the business. Accounting problems start with irregular bookkeeping and accounting. This will not give a true picture of the business decisions that cannot be appropriately made.
Entrepreneurs/owners often do not realize that common small business accounting errors are a major threat to the growth of their business in the long run.
Here are some common accounting errors that damage businesses.
Not using accounting software
Manual work is always at risk for error. A small accounting error can cause significant damage to businesses. Small and medium-sized companies should use appropriate accounting software according to their business type. Cloud accounting is an emerging technique in accounting software and has its benefits for small to medium-sized businesses.
Manual accounting is time-consuming, and the chances of errors are much higher. While using accounting software not only diminishes the opportunity for error but it also takes much less time to complete accounting operations.
Choosing an appropriate software is an important and challenging step in business and must be done according to your needs. When selecting a suitable program for your small business, you should consider the software’s cost, usability, and extra features.
Features of accounting software must include:
- Inventory management
- Sales tracking
- Contacts management and contact history following
- Account to accept credit card payments
- Producing invoices
- Financial statements, cash flow statements, and balance sheet
- Budget planning
- Payroll
- Taxation matters
Infrequent bookkeeping
Bookkeeping and accounting statements must always be kept up to date in any business. Running behind in bookkeeping and submitting expense or sales entries will not produce an up-to-date picture of the business and allow you to make timely decisions. This can lead to a negative balance if expenses are made, but an income statement is not updated. Invoices that the company has not yet paid may go unnoticed and damage the company’s reputation, end terms with your suppliers, and reduce or halt business growth. Not producing monthly financial statements is common in small business accounting problems.
Mixing personal finances with business accounts
Business owners will sometimes combine their personal cash with business expenses. It is of utmost importance to keep personal and business finances separate. If these two finances are not isolated, then it cannot be known what was planned for business and what was consumed personally. Likewise, the amount of profit that was produced out of the invested capital cannot be assessed properly. Suppose a business credit card is used for personal expenditures during a holiday trip or other payments. In that case, this sum will be funded from the company’s income and can be problematic.
Similarly, during purchase orders for inventory, procurements can be made for private use, impacting inventory and damaging the company’s reputation.
Covering small business expenses out of pocket
Business owners often take it upon themselves to pay minor expenses for the business out of pocket as it saves time. However, these expenses are not listed in the business bookkeeping. The business looks financially stronger when this accounting error is made.
Debt interest for managing payroll
Small to medium-sized businesses obtain loans at the time of monthly payroll. The income of the business ends up paying back the loans with interest. Sometimes, the debts increase as well as the interest on those debts. Instead, businesses can get payroll companies’ services to avoid heavy, long-term loans.
Conclusion
Small business accounting errors range from minor errors to considerable accounting and bookkeeping errors which can put the business at risk of failure. Accounting problems often start with irregular bookkeeping and when not using accounting software.
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