Good accounting practices play a major role in small business management because it helps you track the overall financial health of your company. Poor accounting, on the other hand, may hamper your business’s growth and success.
Many startup companies handle accounting and bookkeeping themselves to save on overhead costs. But if you’re not well-versed in handling finances, you might be putting unnecessary strain on your business.
In this article, we’ll share 10 accounting mistakes new businesses should avoid.
1. Doing everything on your own
A lot of passionate entrepreneurs have a tendency to do everything on their own. However, juggling multiple tasks at once can do more harm than good. It’s best for small businesses to delegate these tasks to professionals early on.
Leaving the accounting to the compliance specialists saves you time and energy so you can focus on other important matters. Inversely, if you’re a good accountant yourself, then you should focus on bookkeeping and let your team handle the other tasks in your organisation.
2. Depending too much on accounting software
Reliable accounting software can bring countless benefits to your new business. However, depending on these solutions too much can leave you vulnerable to errors and oversights.
So, while you can (and should) invest in accounting software, you should also learn how to make manual audits. This way, you can detect, avoid, or fix any discrepancies that the software missed, enabling you to maintain a spotless bookkeeping ledger.
3. Investing in low quality accounting solutions
Getting a good bargain should be one of your top priorities when buying tools and resources for your business. But when it comes to accounting, you shouldn’t always go for the cheapest option.
This doesn’t just hold true for accounting software itself, but also for your advisors. When looking for accountants, focus on their skills instead of their rates. Hiring good advisors may be expensive, but at least they can do the job properly. Not only will they allow your business to enjoy top-notch bookkeeping records, but they’ll also help you save money in the long run.
4. Ignoring small purchases
Small expenses like meals may not be too much of a big deal, but they can easily mount up if you neglect them. Good accounting involves keeping track of all business transactions, even the small ones. So make sure these little purchases get jotted down in your business’s ledgers.
Aside from keeping your books balanced, it helps you justify claimed expenses in case the tax office comes knocking.
5. Improper budget allocation
Failing to allocate budget for your business expenses can cause spending to spiral out of control. This will leave your company splurging the limited funds it has, leading it to financial ruin and an eventual demise.
If you want your fledgling business to make it, you need to learn how to allocate budgets for each of its expenditures. Doing so helps you maintain accounting, as well as enabling you to optimise your company’s ability to gain revenue.
6. Failure to use accounting software
As mentioned above, relying too much on accounting software can lead to disparities in your business’s books. However, that doesn’t mean you should forgo employing these tools altogether.
By combining good auditing skills with the right accounting software, you’ll give your business a good bookkeeping record. Doing so certainly brings many benefits. For example, certain accounting software can be integrated with your bank account. This allows you to access your bank data anytime, as well as providing backups in case of emergencies.
7. Failing to reconcile accounts
Account reconciliation involves comparing your ledgers with your bank statements and checking for any discrepancies.
If you want your new business to succeed, then you need to perform this task regularly. Make it a point to browse through your business’s books and bank statements every month.
If you encounter any errors or irregularities, contact your bank immediately to resolve it.
8. Not relying on outside financing
Most businesses face cash flow problems at one point or another. The smaller your organisation’s cash flow is, the harder it will be to pay for the bills, hire new staff, or expand your operations.
Loans and outside financing help ease this problem. Take invoice financing for example. This funding method allows you to exchange clients’ invoices into working capital, thus giving you funding whenever you need it. It will also allow you to keep your company’s cash flow running.
Through outside financing, you can have an extra source of funds to rely on as well as a tool that will help keep your accounts balanced.
9. Not coordinating with your accountant
Failure to work properly with an accountant can cause serious financial troubles for your venture.
If you decide to hire a bookkeeper for your business, you should make it a point to keep them in the loop regarding everything going on in the company.
Since it’s crucial that they have all the information regarding your company’s transactions (big or small), you must make sure that they get it. That way, it will be easier for them to keep tabs on your business’s income and expenses, allowing them to keep your ledgers balanced.
10. Not backing up your data
You should make it a priority to back up all records of every transaction your business makes. Instances of stolen equipment, computer crashes, and other emergency circumstances can potentially destroy your financial data, especially if they’re on paper or a single device.
By making multiple backups for all your business’s information, you can ensure access to this vital data for years to come. Luckily, many online services are available to help you backup financial data. Aside from these, you can also rely on cloud accounting software which automatically creates a back-up using cloud storage services.
While there’s nothing wrong with handling accounting on your own, it’s best to hire an experienced accountant to handle your books.
These professionals can help you avoid costly mistakes, find savings on taxes, and look for business growth opportunities based on your company’s current financial health.
They also ensure that proper procedures, documentation, and processes are in place, so your business is positioned for success.