Accounting is often regarded as a necessary evil by entrepreneurs. Everyone knows it is absolutely crucial for any business and yet, a majority of people dread doing it. While accounting does take care, discipline and some basic knowledge, without managing your accounting properly you’ll end up with a limited view of the financial reality of your company. In this article we will shed some light on the most common accounting errors, to prevent you from falling at the first hurdle and help you maintain a good understanding of the financial health of your company.
Mixing Business Expenses With Personal Expenses
It is often in your best interests to clearly distinguish between your professional and personal accounts and expenses. We recommend opening a business bank account as soon as possible and then requesting a company card. This way, it’s easier to differentiate between the types of expenses you have. Getting a company card will help you develop a good credit rating, which be useful if you wish to borrow money in the future.
Not Keeping Or Organizing Paperwork And Receipts
Don’t fall into the trap of the shoebox method, ignoring all of your receipts and invoices until the deadline for submitting your tax return is approaching. Without a system in place for organizing your receipts, you could misplace them. If you haven’t got a record of these refundable expenses you risk losing tax deductions, so make sure you are careful to keep your receipts, categorizing them by date and type of expense to be more organized. Also, ensure you are keeping your administrative and accounting documents for at least the minimum duration required, which can vary between countries.
Spending With No Defined Budget
Not establishing a budget is a common accounting error for the self-employed and small businesses. Budgets are in part useful for limiting excessive spending, but also for establishing realistic financial objectives, whether you’re seeking to boost revenue or reduce operational expenses. A budget can also be used as a baseline for monitoring your company’s results.
Not Carrying Out Bank Reconciliation
Bank reconciliation is a process used to ensure that a company’s accounting books are in line with their bank statements. Skipping this stage of verification could lead to irregularities or mistakes in your accounting books. To keep your books in check, be sure to carry out bank reconciliation every month. The more frequently bank reconciliation can be carried out the better, leaving it for the end of the financial year is not recommended, as sifting through a whole year’s worth of statements is no mean feat.
Going Without An Accounting Software
Data entry, transcription and processing errors are some of the most common reasons behind unnecessary financial loss. Although you can’t prevent all data entry errors, there are procedures you can put in place and tools you can use to ensure that the entries are identified and corrected as soon as possible. We recommend using an accounting software, such as Kiwili, which will enable you to carry out your accounting efficiently. It will save you from doing tedious calculations, duplicating entries, and wasting valuable time. An accounting software is particularly useful for invoicing clients, receiving payments, bookkeeping, bank reconciliation, and generating financial statements. Unusual transactions will be flagged up immediately by your accounting software allowing you to review and correct them where necessary.
Sending Invalid Invoices
Did you know that the invoices you send to your clients must contain certain information in order to be legal ? What’s more, the criteria can differ from one region to the next. Find out more about what needs to be included and how to create invoices easily.
Not Calling In The Professionals
Whether you’re running a company or working for yourself, you just can’t do it all on your own. Know your strengths and don’t hold back when it comes to asking for help or recognizing that you need it. Not an expert on accounting ? Get a second opinion on your corporation tax or help establishing a chart of accounts that works for your company. Don’t delay in asking for help when you need it, to avoid costly accounting errors.
We get it, you built your company from the ground up probably, so it can be difficult to let someone else take the reins, but outsourcing accounting, legal, IT, and more can limit errors and boost profitability, allowing you to focus on core activities like revenue generation and future planning. The growth of your business will depend on your ability to delegate.
Many new business owners are optimistic they’ll be able to study on the job and pick up qualifications in accounting, tax, and managing business assets for example, but often there simply aren’t enough hours in the day, despite good intentions.
Not Keeping Up-To-Date With Your Legal Obligations
Tax and accounting laws can change overnight and you have no choice but to follow them. You need to make sure you stay up-to-date with the latest rules and regulations. Using an accounting software with automatic updates will keep you on track.
It’s important to remember that these laws apply to all businesses, whether you are self-employed, a freelancer, part-time, or even if you consider your business as just a hobby.
Not Backing Up Your Accounting Files And Software
You will need to back up your business’s accounting files and software regularly. Many accounting softwares not only back up your records automatically, but also guide you through the process and issue prompts to ensure your back ups are up-to-date. You can take this one step further and try using the back up files for your business processes to ensure the system is fully functional and there are no issues such as file corruption or required software updates.
The Wrong Person For The Job
If whoever is in charge of your accounting doesn’t know what they’re doing, you’re the one who will need to pick up the pieces later. No one will take as good care of your books as a professional accountancy firm. An accountant has a fiduciary responsibility, by not using a certified professional you are at risk of criminal activity like embezzlement or theft.
Not Making Time For What Matters
Business owners can be quick to make time for activities that generate revenue, but when it comes down to the small print it’s often last on the to-do list. Try setting aside a fixed hour each week for a conference call with your accountant, or perhaps an afternoon each month to get together.
Remember, accounting isn’t all about tax, it is vital for saving money and identifying waste, fraud, and theft. As a business owner or manager, you need to make accounting a priority, don’t turn a blind eye and leave it all for the accountant or an unlucky newbie on the team. Mistakes can range from basic mathematical errors, incorrect data entry or transcription, and failure to document expenses and income correctly. Although it is very difficult to avoid all accounting errors, if you put these effective procedures into practice and use an accounting software, you will be on the right track. Don’t hesitate to consult a certified accountant, they will know how to guide you in making clear business decisions and guarantee the financial health of your company.
Try and view your past mistakes in accounting as a learning curve; an opportunity to improve your accounting processes. In an ideal world, we would always get it right first time, but at least with proper preparation and planning we can identify errors early on in projects and avoid rectifying costly mistakes further down the line. As a small business owner, you should always be on the look out for ways you can improve, and in some cases automate business processes in order to save time and energy, and limit potential mistakes.
Kiwili’s accounting and management software is an all-in-one online solution for your accounting, designed specifically with small businesses and the self-employed in mind. Try Kiwili for free today, and see how Kiwili can help you limit your accounting errors and boost your productivity.