Accounting is essential to the smooth operations of any business and helps maintain the records of a business’s financial standing. It also gives detailed insights into business and employee performance metrics and allows owners to gauge the strengths and weaknesses of their business.
Recently, countless accounting software has surfaced, helping mitigate the risk of errors. Previously, accounting meant literal bookkeeping of all expenses, costs, taxes, and revenue with pen and paper. This meant a potential margin of human error and tiring work with manual processes. First, Microsoft Excel made it easier for accountants to maintain records, and proper accounting software dedicated to managing cash flow, expenses, budgeting, and revenue soon followed. This software would also prove beneficial in helping company owners develop review projections based on the past trends of the company’s financial metrics.
However, process digitalization does not mean the risk of error has been reduced to zero. Even though there is a lesser risk of errors occurring when using account software, mistakes still happen and can drastically impact the company’s financial health. This is precisely why business owners need to understand the risks associated with accounting and how to avoid common accounting errors resulting in business loss.
Below are strategies to avoid common accounting errors:
- Keep Your Accountant Focused: To avoid data entry errors, your accountant must focus on their duties. Attention to detail and focus are essential in accounting. A minor calculation error or an extra zero in the number can drastically affect the overall bottom line. It is necessary to focus solely on the task at hand and cross-check numbers every step to avoid any major errors and eventual monetary loss to the company.
- Do Not Delay Record Keeping: Accountants often delay maintaining the financial records until the end of the fiscal period or when the closing period is near. This can lead to omitting important transactions or making calculation-based errors. Business accounts should be maintained daily to avoid amplified work that can increase the margin of error. As a business owner, you must monitor accounting habits and ensure that your accounts are maintained daily to avoid backlog and errors.
- Never Ignore Small Transactions: Accounting officers often fail to record small transactions or petty cash. The accumulative effect of all these transactions and the continual depletion of petty cash can create an imbalance in the budget and even cost a fortune if not detected in time. These oversights often amount to a significant portion of the budget, which might initially seem unimportant. Ensure that your accountant logs every transaction of liquid cash into the finance books so you have a clear idea of the outflows and how they can be contained or stopped altogether.
- Reconcile Your Accounts with the Bank: One of the most common mistakes business owners make is failing to match finance books with the actual statements of bank accounts. This practice, if done irregularly, can cost the business a lot of money. If the accounting team frequently cross-checks internal financial documentation with external documentation, there is a higher chance that no discrepancy will be observed.
- Never Spend Beyond the Allocated Budget: Business owners often use their authority to breach budget allocations and increase the spending of one or another aspect of the business. Before doing so, it is important to consult with the accountant or at least review the business’s financial standings. Reallocating the budget disturbs the entire chain of operations and often lands owners of Small and Medium Enterprises (SMEs) in hot water. Failing to adhere to a budget also makes it problematic for you to rein in a venture that has cost you more than it should have. This can cause your business to expend its limited funds on developments that will not produce a return on investment.