Our Guide to Avoiding Accounting Mistakes in Small Businesses - What to Know
Accounting, regardless of how small or expansive a business may be, will always hold its significance in industry success.
For small businesses, in particular, accounting is a vital practice that can easily make the difference between succeeding and failing. The problem with accounting that most small businesses tend to struggle with, however, is that it has a rather small margin for error, especially when it comes to taking on survival and growth.
An accounting error can set back any business both financially and performance-wise, but small competitors are often hit the hardest for even the smallest of mistakes. Doing something as simple as putting an extra zero or typing in the wrong number can put your business at the risk of financial ruin, more so when accounting inexperience is brought into the picture.
To avoid making any costly errors which could tremendously set your business back, here are a few common accounting mistakes that can put your small business at risk (and how you can avoid each one):
Accounting mistake #1: Trying to manage every bit of your business’s accounting on your own
Subjecting yourself to a sort of small-business-accounting type of martyrdom will not turn out well most likely. Let’s face it, most business owners don’t exactly have a much-needed knack for numbers.
While it may be one thing to let the passion for your business unfold, managing everything on your own is not a smart thing to do, especially when the time for growth comes. Acting with a lack of knowledge on proper accounting principles and procedures will have your business hanging right above a pit of fire in only a few short months. Being overworked and not knowing what you’re exactly doing makes for a terrible combination that can lead your business from a “rising star” status to filing for bankruptcy.
How to avoid this: No matter how great your business idea may be, it is much easier to protect your efforts and ensure their continuity by eating a piece of humble pie and bringing in additional help. Outsourcing the services of an accounting professional will put someone much more capable of running your business’s numbers and keeping track of them for success.
Accounting mistake #2: Cheaping it out as often as possible
Taking the small business label to heart, most small business owners make the mistake of cutting costs at every turn to save a few hundred dollars but nearly ending up costing themselves thousands in the process.
Hiring a cheap accountant and purchasing an even cheaper automation system, for instance, can create lapses in financial information that will put your business in an expensive predicament. Cheap options are priced low for a reason, which essentially means that your business is going to get what it paid for.
How to avoid this: Make all the necessary investments in methods that can truly help your business grow. But make sure to make one purchase at a time to keep the cash flow going.
Accounting mistake #3: Not knowing that there’s a difference between cash flow and profit
Cash flow and profit, unbeknownst to most small business owners, have significant differences that make it a cardinal accounting sin to confuse one for the other.
For one, profit pertains to the amount that remains after every incurred expense is subtracted from sales revenue. Cash flow, on the other hand, pertains to the amount of money that flows in and out of the company from various sources of income and expenses (such as investments, purchases, and the like). Knowing the difference between these two accounting concepts will make the difference between going under or coming out on top of the financial standings.
How to avoid this: The best way to avoid any accounting issues is to keep track of what you are spending and compare it with how much you are selling. Reviewing your monthly financial statements will give a clearer picture as to how your cash flow looks in reference to your business’s profit.
Running a small business can often be described as a challenge that is even filled with smaller challenges that could possibly stop your efforts right in their tracks. Fortunately, the mistakes that your small business could possibly make (or is currently making) can be easily avoided by keeping this short, yet effective guide in mind!
If you’re looking for a small business accountant on the Gold Coast to help you avoid these mistakes, get in touch with us today to see how we can help.