5 Common Accounting Errors Small Business Owners Make
Updated: May 24
Getting lost in your financial statements happens, and when it does, it will be so easy to make a mistake. The problem is, these mistakes, whether big or small, can be time-consuming and expensive. Therefore, you need to protect your small business books from the most common errors. What are these common accounting errors? Read on below.
Errors in Omission
You constantly handle financial transactions, which means there’s always an inflow and outflow of cash. This is when small business owners make a mistake as they let details slip through the cracks. When this happens, you will have errors of omission.
Not being able to record every business expense can cause huge problems, which would lead to inaccurate financial records. You won’t be able to measure profitability accurately, and you will have a difficult time filing your taxes.
Net Profits and Cash Flow Are Treated Equally
Your business’s net profit and cash flow have a lot to do with your expenses and income. However, there is a big difference in how these two measure money.
Net profit shows whether you make money after you pay expenses. You get this by subtracting your expenses from sales dollars; it also measures a specific block of time. On the other hand, your cash flow is how fast you move money. It shows the money that comes in and goes out of your business. By projecting the cash flow of your business, you can see the liquidity of your funds.
Many small business errors treat these two equally, which can turn into a huge problem.
Not Reconciling Books
You will be surprised that a lot of small business owners fail to reconcile their books. Not able to do so will result in common accounting errors that often go unnoticed for a long time. This becomes an inconvenience in the future, especially when tax season rolls around.
By reconciling your books, you will be able to catch errors early on. With that, you will be able to fix them immediately before they turn into a big issue. You need to reconcile your books with your bank account regularly to ensure their accuracy. Make sure the balances on your bank statement and accounting records match.
Failure to Follow a Budget
Small business owners work with limited funds. That is why having a budget is important. A budget will keep you from overspending and help you in creating a strategy for your income and expenses with a business budget.
With a budget, you can guarantee your money will be on track. It also takes out the guesswork in financial planning.
Too Much Time Spent on Accounting
Small business owners feel like they need to do it all. Most of the time, they will spend a lot of time on accounting that they neglect other parts of the business.
If you think accounting is taking too much of your time, it would be better to hire an expert to help you through the process. By doing so, you free up more time to focus on other important aspects of your business. Also, you avoid inaccuracies in your financials since professionals are handling the accounting.
New Wave Accounting has the best small business accountants in Gold Coast and the rest of Queensland. To know more about how we can help your small business thrive, contact us today!