While starting a new business, entrepreneurs have high enthusiasm and expectations. But due to the cash crunch, they feel like doing everything by themselves, be it marketing or accounting and this makes them fall prey to common accounting mistakes.
According to the survey done by US Small Business Administration, 50% of the businesses fail in the few initial years. And the major reason for the failure of the business is the risk involved in starting and running a business. Starting a business can be risky and also success is not guaranteed. But still, they create the greatest growth, and more job opportunities, and account for up to 90% of all business, making it the backbone of all economies.
The expansion of the small business depends on the advanced techniques implemented by the business owner. In every small business bookkeeping is an area that can very easily hinder the way of business development. Actually, most small-sized business owners take it lightly. In this process sometimes they forget to enter small business transactions and eventually this limits the potential growth of the business organizations.
Bookkeeping is a branch of accounting that basically entails recording and managing financial data. If this is done right then business growth can be tracked every single day. Bookkeeping in an essence is one of the most important tasks as the building up of financial documents with correct figures and facts starts from checking the record book itself. Thus most companies prefer to accord this job to professionals who are either part of outsourced bookkeeping businesses or freelancers.
Bookkeeping business owners themselves have to pay very close attention while completing the required activities. One mistake from their end can result in revoking the contract from the company whose business they were handling. Bookkeeping is such a delicate task as one wrong figure anytime while recording the transaction can put the entire business’s financials at risk.
These dainty tasks under bookkeeping should be handled with as much care as possible. However, despite being so careful at times we do end up making mistakes that result in loss of business. Sometimes it is due to our ignorance and sometimes because of overlooking some of the errors. Thus, let’s find out what are the most common mistakes that business owners make:
Common Accounting Mistakes
Common Accounting Mistakes done by Small business owners
1. Accidental Transactions Recording
When you have closed the books for a fiscal year, you cannot change them. With the QuickBooks accounting software, you are restricted to locking a prior period’s financials so you can post the current year’s entries in a prior period. There are many accounting software programs that permit you to make this mistake if you have not configured the software to lock prior period financials. Review the prior period balance sheet carefully for changes.
2. Poor or Inadequate Market Research
It is important to have a viable idea with a competitive market price that accords an adequate return. The more you know about your market, the greater your confidence will be in your approach to it. Seek a complete understanding of your market’s motivation or interest in your product/service.
3. Weak Financial Planning
There are many small businesses that started with less capital and resources. Having sufficient capital is essential for the growth and prosperity of a business. You need to put your mind to understanding what your running costs will be for the coming months, including your personal costs. Prepare a contingency plan for scenarios that could impact your business. Considering that a business can sustain itself without sales or profits, but cannot survive without cash.
4. Focuses on Sales Instead of Profit
Many new businesses make the error of focusing too much on growing the sales volume or size rather than the profit. It’s crucial to understand what your costs, expenses, and profit ratios are for each product/service along with what happens to the profit if you discount the price for large orders. Further overtrading can occur when a business takes on more orders than it can Consultant with its working capital and current assets.
5. Taking your Eye off the Competition
If you are unable to monitor your marketplace you will fail to keep an eye on the type of competition or threats that exist that could impact your business. As a small business owner, it is important to be looking for ways to help your customers improve and reach their goals. If you fail to do so then you will then later see the impact in your books of accounts with less or no profits.
6. Setting up Poor Credit Arrangements
Complete credit checks with potential new customers. It can be destructive for the business to keep it exposed to delay or non-payment; specifically when you cannot pay your suppliers or bank on time. Make certain that new customers are aware of your credit terms. You should acknowledge offering a discount for early or pre-payments.
7. Inaccurate Asset & Liability Balance
The major cause of having an incorrect balance in one balance sheet is when they post either duplicate entries or make entries that are no longer existing. Check your balance sheet for errors by maintaining the asset accounts with debit balances whereas liability with credit balances.
8. Overlooking Suggestions from Frontlines
Frontlines as in the employees who have direct contact with the clients or are handling the tasks of the clients. These employees have a lot of ideas and suggestions which sometimes come directly from the clients. The moment you start ignoring the ideas presented by these sections of employees, you start losing trust and respect in their eyes which later on is suffered by your business. Now when your business is impacted then how can you expect your accounting to show positive balances.
9. Customer Feedback
The best judges of our services are the customers and clients who use them. For any improvement or suggestions, general public should be approached as they are not biased, either positively or negatively, and would always offer genuine reviews. However, the moment you stop listening to your customers, your business lands in trouble. Then knowingly or unknowingly your clients start to feel unsatisfied with your services, which then compels them to choose other service providers for Bookkeeping.
10. Scheduled Backup Failure
Usually, it happens that many small businesses blindly trust software to perform all the accounting work for them. What they fail to consider is that even these software are prone to errors. It seems to be simple but one single problem can wipe out your files. It is recommended to schedule routine backups.
11. Fail to Save the Receipt
Carefully record all your expenses in your accounting records. When asked by the IRS; without receipts, your expense statements are useless. Keep all your receipts safe. Save your receipts or make scanned copies of all of them.
12. Wrong Classification of Expenses
Accounting for small businesses saves time because entries can be posted quickly and easily. Wrongly classified expenses mean, that the accounting system may not properly reflect the business scenario. You need to look over your expense statements periodically.
13. Faulty Expense or Revenue Balance:
The major reason for an incorrect balance in these Balance Sheet accounts is posting entries to the incorrect account, misclassifying accounts, and duplicating adjusting entries. Check your Balance Sheet for errors so that you can enter assets accounts in the debit column and liability accounts in the credit column.
14. In–house Accounts Management:
Managing entire accounting operations in-house can create problems. Attending the accounting tasks yourself might seem like a great way to save money, but it could actually cost your business more money. An accountant will have greater costs than managing your accounts by yourself but can help you save more money.
15. Books Reconciliation Failure with Bank Accounts:
Reconciling process is for checking the accuracy of an account balance as listed on your books, ensuring that it matches the real balance of your bank account. It is very essential for all businesses whether big or small to reconcile their entries every now and then. This helps them to make sure that their financial entries are done in the right way. This also helps businesses to avoid any unpleasant situations of being on the wrong side and thus prevent any financial discrepancies. The above tips are not only suitable for bookkeeping businesses but also for every other establishment or organization. However, bookkeeping businesses and similar operations should keep a special eye on these tips as they are dealing with clients and that too the financial aspect of the business.