How to Avoid the 5 Most Common Small Business Accounting Mistakes

Managing income and expenses accurately is an important aspect of running a business successfully. Unfortunately, many small businesses make mistakes in their books, without even realizing the impact those mistakes can have on their long-term viability.

No system is foolproof, but whether you’re running your books through an accounting system like Quickbooks Online or Xero, or using Excel spreadsheets, human error can be costly.  

With this in mind, here are the five most common small business accounting mistakes and some tips to help you avoid them.

1. Common data entry errors

When you are manually entering the numbers in spreadsheets, errors are bound to creep in. One of the challenges with spreadsheets is that one wrong keystroke can inadvertently break your formula or shift a long column of data down a cell—with disastrous results.

Even if you’re very careful to protect your spreadsheets from those types of errors, other simple errors, like transposing numbers (typing 95 when you mean to enter 59), are possible. The bigger the rush you’re in to finish your accounting process, the more likely it is that you’ll make this kind of mistake.

How to avoid data entry mistakes:

• Double check your work: Have someone on your team double check your data and reconcile financial statements frequently. Don’t leave the responsibility entirely in the hands of someone else.
• Train your team on how to use your system, whether it’s the fundamentals of using Excel or best practices for using a cloud accounting system like Quickbooks. Make sure you understand how to use the systems, too.

2. Procrastinating accounting tasks

Managing books and tracking finances can be a tiresome process. You probably started your business to be able to do work that’s exciting to you, not because you love financial statements.

So, you might be inclined to procrastinate on your accounting tasks. But you’re ultimately increasing your burden and increasing the likelihood of mistakes and making it harder to use your financial information to guide your business’s growth.  

How to avoid the procrastination trap:

• Schedule your time on your to-do-list and ensure you spend daily an hour with your books. Spending an hour daily will help you focus on other core aspects as well and keep your numbers accurate.
• Use a cloud accounting solution that connects with your point of sale and inventory solutions so that you can automatically pull that data for bookkeeping instead of doing double (or even triple) data entry.

3. Petty cash gone rogue

Every company needs to develop policies and procedures for handling petty cash. Ideally, all cash from sales should be deposited in the bank at the end of the day, but a small proportion is usually kept aside to deal with minor demands.

But, petty cash can be a headache—and even a drain on your cash if you don’t set it up properly.

How to avoid petty cash problems:

• Set up an efficient system that can help you track the cash kept on hand for business expenses.
• Require receipts and documentation about what the cash was used for.
• Keep petty cash locked up. Don’t make it too easily accessible. Don’t keep large amounts of cash on hand.
• Use an expense tracking system like Expensify to help manage your entire system of expense reimbursement and petty cash so you can keep all that information in one place. If you’re tracking expenses and petty cash in spreadsheets, reconcile it weekly and keep all receipts together in one place.

4. Spending without having an effective budget

The very word “budget” sounds restrictive. But in reality, having a fixed budget does not bar businesses from spending on what is necessary or what is required to smoothly carry out operations.

A budget is simply a tactical framework to make sure you’re channeling your spending toward high priority with the greatest returns on investment.

How to avoid spending outside of your budget:

• Create and use a budget. It should be based on a combination of your historical spending, your cash flow, and other projections.
• Make sure you’re comparing your budget with your actual spending on a regular basis so that you’re not overspending.
• Plan for unexpected expenses so that if an expense comes up, it doesn’t put your business at risk.

5. Not seeking help when needed

When you are managing a growing business, you cannot handle every single aspect of your business like a pro—almost no one has expertise in every single area. At some point, you might need help for streamlining your accounting processes.

Even if you love bookkeeping and accounting, it might make sense to hire help during tax season or for tasks like processing payroll. Increasingly, businesses are turning to accounting professionals for strategic business advice to help them grow their business. It can be worth it to pay for expertise in certain areas.

So, analyze your strengths and seek help for your weaknesses to thrive in this competitive market.

How to get the right kind of help with your accounting processes:

• Think through whether you need someone on staff to handle your accounting procedures, or if it makes sense to just hire help when you need it—during tax season, for example.
• Talk to other business owners in your area—ask them who they use when accounting needs come up.

For small business owners, keeping things running smoothly and prepared for growth requires paying attention to your own strengths and weaknesses.

If bookkeeping isn’t your strength or passion, start with developing some systems so you can keep things as simple as possible. Leverage software tools and accounting professionals when it makes sense, and don’t be afraid to ask for help when you need it.

from: Bplans BlogBplans Blog
via Avneet Narang

Source: How to Avoid the 5 Most Common Small Business Accounting Mistakes Via Business Advice.