AVOIDABLE ACCOUNTING MISTAKES
By Gary Epstein
Most would agree that the accounting function is one of the most important aspects of any growing business. Many successful companies, both large and small, are run by CEOs and MDs with a financial background and there is a reason for this. Staying on top of the financial developments in your company may be difficult, but it is necessary and the most important part of this is being organised. Even if your company doesn't have an established accounting department, it is important to have all your finances organised and recorded. Many businesses fall short of the mark when it comes to financial organisation. Here are some of the accounting mistakes typically found in small to medium businesses and tips on how to avoid them:
1. USING THE WRONG SOFTWARE OR NO SOFTWARE
A common mistake when starting a business is doing the accounts yourself using antiquated techniques and even worse is thinking that this function can be avoided altogether to save start-up costs. If you don’t have accounting software, rectify the situation as soon as possible and know that this is not a one size fits all scenario — every business’ needs are different. It’s important to opt for the right software to make your accounting more efficient. For instance, if you sell products and keep inventory, opt for a software package that includes inventory management. If your business is growing and you are employing more people, you will need accounting software that offers payroll solutions. The right software can make your business more efficient and more profitable.
2. NOT BACKING UP YOUR SOFTWARE
If you are like most small businesses, then your entire financial history is kept safely on a hard drive. One must remember, however, that even hard drives are prone to failure and if you don’t back up your software you run the risk of losing everything. The solutions are simple — use an external hard drive or invest in software that provides automated off-site back-ups. Another option is to choose accounting software that is based in the cloud and will allow you to organise all your accounting information without the threat of a systems crash causing you to lose all your data. Any one of these solutions will help you avoid the painful consequences of losing all your information.
3. NOT FILING AND FAILING TO SAVE YOUR PHYSICAL DOCUMENTS
There is no doubt that accounting software makes it easier to track your financial progress, however, you should still keep physical copies of important documents. Storing and filing receipts, bank statements, bills, invoices and other vital records are incredibly important and should be a priority in your small business. Think of it as a physical backup that will enable you to maintain some of your records even if your software crashes.
4. NOT RECORDING TRANSACTIONS IMMEDIATELY
Running a business is a time-consuming and busy undertaking and it is easy to get caught up in the daily grind. It is all too easy to procrastinate on tasks like recording transactions, but forgetting to input transaction information into your accounting software can cause major issues later on. It also leads to bad habits — the old adage of not putting off till tomorrow what can be done today should apply. Whenever you make a transaction you should input it into your accounting software. Every transaction must be recorded as soon as possible and as a sanity check at the end of each month, you should take the time to compare your records with your bank statements to ensure that everything is balanced.
5. AVOIDING BUDGETS
We get it — everyone hates budgets, but the lack of proper budgeting is also one of the biggest mistakes small businesses make. Every project, objective and job requires a budget to ensure that you work within these parameters. A budget keeps you on track and without it you may end up overspending by leaps and bounds. We talked about being organised earlier on; budgets can help keep your business organised and provide a great way to make projections for the future.
6. ESTIMATING BLIND
No estimates should ever be done by someone with little or no accounting experience. In small businesses tasks are often given to the least busy person or whoever is available, but when it comes to estimates, this is not a good idea. It is important to get a clear understanding of each job or project from all angles. Accountants make it all about the facts and figures and because of this they will generally come up with a better, broader estimate which you would not have arrived at on your own.
7. NO ACCOUNTING TEAM
Many businesses start off with outside accountants managing their finances, but as businesses grow this option become less and less attractive. Even with great software, the reality is that when you have a large number of employees, an accounting team may be necessary. For small and medium businesses this may not seem cost-effective, but the improved efficiency you gain will more than make up for it. For a small to medium business, the benefit of a dedicated team focused on ensuring the organisation of your expenses, income, accounts received and accounts payable, is invaluable.
Good accounting is probably the most valuable asset of any small business. Taking heed of these avoidable mistakes is a sure-fire way to increase the efficiency of your business and make it more profitable.