7 Common Accounting Errors to Avoid in Your Business Key Takeaways
Accounting errors can result in impacting businesses’ finances on a large scale. It is essential to avoid mistakes such as management of bills, failure to budget, and not seeking professional advice. Avoid mixing your personal and business finances, not backing up data, and irregular bank reconciliation. Accounting is critical for the success of your business if done accurately. It is an integral and imperative organ of a firm that can not be neglected at any cost. One can’t imagine how accounting errors can affect businesses on a large scale.
Take the example of Groupon, a coupon and rebate provider company that made a huge blunder in their accounting records.
In 2012, Groupon reported their fourth quarter but forgot to include the entire amount of customer refunds — their primary service, in their financial statements.
It cost them a lot of money, as their fourth-quarter loss increased from $42.7 million to $62.9 million, which led to a decline in the stock price of six percent.
This indicates how small accounting errors, that go unnoticed, can seriously halt your business growth and make it difficult to make any right decision to correct it.
In this article, we will give you comprehensive details about common accounting errors to avoid in your business, so without any delay, let’s get started.
Most Common 7 Accounting Errors to Avoid The following list explains the accounting errors that you should avoid in your organization to save yourself from future problems.
Not Seeking Professional Accounting Advice Even professional accountants make errors, but still, they are professionals in finance, which you are not.
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By not taking professional accounting advice, mistakes in areas like employee tax holding for financial transactions can result in costing you more than your savings.
Management of Bills Inefficiently Cash flow is crucial for organizations for day-to-day operations. If you bill or send invoices to your customers or clients efficiently, it can work well in the long run.
Fun Fact
Bubble gum was invented by an accountant.
Prompt payments from the customers can help you tap into expenses, payroll, or some other needs. If you do not have good management of the business accounting end operation, it can result in a shortage of funds in your cash flow.
Delays in invoicing and customers taking longer periods to pay can leave your organization stretched thin to cover the bills.
To align bill management, immediately send invoices to your customers right after the end of the transaction. It is crucial to note that sending an invoice via email is better than sending the bill by mail.
Failure to Budget If you do not maintain a budget for your business, it will cost you more as you will end up overspending . It is important to work on bookkeeping by paying attention to every small detail.
It can be a tedious task, so you need to understand that not every expense holds strategic importance. You can instead focus on costly items during your budget review schedule, as these require prompt response.
However, you should not completely forget the small item expenses, whether it is as minimal as the cost of a box of pens. These expenses need to be recorded, as they will be required during the time of audit.
Mixing Personal and Business Finances Sometimes businesses mix up their personal and business finances, especially small business owners, and end up using a single bank account.
But, that is not a good move, as it will create chaos and make it difficult to sort out personal and business transactions. It will cause major problems when the time of tax comes around.
If you are currently using your personal and business accounts combined, it is the right time to break the habit.
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Not Reconciling Bank Statements Regularly Another accounting mistake business owners make, not reconciling their bank statements regularly. It becomes feasible when you see real-time updates from the bank and credit card accounts in the accounting software, but that could be a mistake.
Fintech accounting adds efficiency, but it can also create several complexities. So it becomes necessary for you to take time to reconcile your records as soon as you receive the accounts statements. This should be on your regular task to keep everything on track.
Not Backing Up Financial Data If you have backed up your financial data in the cloud, it does not mean it is safe. It is essential to store the data in more than one location, in case you become a victim of ransomware or some other cyberattack that could compromise your records.
It is a good move to store the data on the cloud, but you must store this data on an external device as well.
Not Using Accounting Software Properly With the advancement of financial technology, accounting software is becoming more and more powerful. Almost all small or large-scale companies use accounting software to manage their business operations smoothly.
The best software can perform complex functions such as management of data, forecasting of financial projects, and report generation. The problem is that most business owners do not know how to take advantage of such features.
The best accounting software provides video demos, free training, and other educational tools, you should take advantage of them.
Also, do not limit yourself to just one software, as some are designed particularly for bookkeeping while others are for tax management. So use them as per the particular task you want to work on.
Conclusion Accounting errors can affect your business on a large scale, even if it is just a small mistake. To successfully run your business, it becomes essential to avoid any possible accounting mistake.
With the help of this article, we tried to explain to you common accounting errors such as mismanagement of bills, failure to budget, improper use of accounting software, and others. We hope that by using the tips provided in the guide, you will not make any blunders in the future.
