10 Biggest Accounting Blunders and How to Avoid Them
With so many businesses realizing that accounting information is the key communications tool of the future, business owners are falling over themselves to get onboard the accounting information bandwagon.
Deciding to use this powerful accounting resource to get your business up and running is smart. However, once entrepreneurs jump into the accounting information waters, most soon realize that it’s a tough swim. There are several common pitfalls most business owners experience as they begin their accounting information efforts. Fortunately, most of these mistakes are easily corrected.
Here are the ten accounting missteps that will sink you faster than you can say “Jack Robinson.”
Blunder #1: Wrong and bad attitude towards bookkeeping
The key to effective accounting is recording everything. From small transactions to large payments from customers and clients, it’s important to ensure that everything is recorded and properly categorized in your accounts.
No matter how small your company might be, taking accounting seriously gives you an accurate, reliable picture of your company’s health, letting you determine exactly how well (or poorly) you’ve performed in a given period.
From categorizing different types of assets and liabilities correctly to performing a monthly check of your books and accounts, establishing a serious bookkeeping and accounting system for your business is the key to keeping it financially secure.
Blunder #2: Not Thinking Strategically
Setting up an accounting system requires thinking strategically as to what is the nature of when you decide to create a video, you’ve got to know your goals! Too many entrepreneurs dive head first into their accounting and bookkeeping without looking at specific business objects..
- What do you want accounting system to accomplish?
- How is the accounting system tied to your business goals?
- What accounting information do your want the system to generate periodically?
I’ve seen many accounting systems that left me scratching my head wondering, “what was the point?” Know your goals going is important..
Blunder #3: Not Keeping Track of Source Documents
Business owners are sometimes not aware of the importance of keeping their business receipts for accounting purposes. Receipts are crucial evidence that can support tax write-offs to the IRS. Without a receipt, a business may not be able to claim an expense on its tax return. Consider scanning all receipts into the computer as well as keeping the original copy locked in a file cabinet for safekeeping.
Blunder #4: Trying to Manage Everything on Your Own
Entrepreneurs, being passionate about their business, have the tendency to want to do everything on their own. When you first started out, you may have been the only person handling everything. The problem arises when you try to manage your accounting on your own, as you may find the quality of services actually deteriorates. Maintaining accounts is important for your business as it grows, but the work required here is time consuming.
Let’s face it: You cannot handle everything on your own. Learn how to delegate some of your responsibilities to others.
As a business owner, your time is valuable, and your business needs your attention in order to grow. It makes sense to hire an accounting professional to handle all the accounts.
Blunder #5: Going for The Cheapest Method
Always seeking out for the cheapest methods to save business expenses can end up costing you more money in the long run. For example, you hire an accountant with the cheapest rate, which may at first seems like the least expensive and therefore best option to go with. But what if they make frequent mistakes in your payroll taxes, and you are not able to submit the application on time?
The old saying: “You get what you pay for” often holds true.
Tip: Spend a little extra to get quality work done. If you are always looking for cheap solution, you can often count on getting a poorer result.
Blunder #6: Inaccurate Financial Report
Inaccurate recording of assets and expenses can lead to inaccuracies within the financial reports. The accountant or bookkeeper should be able to determine the correct business accounting method to use in order to correctly allocate the flow of cash. The cash accounting method is the simpler one because it is used to show the actual distribution of cash that goes into and out of the business. The accrual account method documents income and expenses immediately, rather than waiting until cash is actually exchanged.
Blunder #7: Limited Financial Analysis
Developing a detailed budget is a standard practice for any entrepreneur starting a new endeavor. However, many startup owners fail to regularly assess the status of their business. This limits their ability to modify their budget as the business grows or to detect potential problems looming in the background. One of the best benefits of working with professional bookkeepers is that they can provide you with up-to-date reports that allow you to analyze the financial status of your business. Based on this valuable information, you can set effective long- and short-term goals that are in the best interest of your business’s future.
Avoiding these common financial mistakes can reduce your risk of becoming part of the 90 percent. In fact, staying on top of your finances may help you grow your business and become part of the 10 percent of startups that succeed.
Blunder #8: Mixing Business and Personal Finance (Co-mingling)
The final mistake is all too common. Most folks think once the video is done, their work is done. In truth, it’s just beginning. Too many businesses adapt a “post and pray” strategy – which isn’t really a strategy at all! They upload the video to YouTube or their own site and wait for the views to magically appear.
In this “Field of Dreams” scenario, if you upload it, they will not come. At least not until you effectively promote your new upload.
Post and Pray is not a marketing strategy – you have to create a mini marketing plan for each video and determine how you’re going to get eyeballs to your video.
One easy and often overlooked tactic is to simply leverage your video and get it on to as many platforms as possible. Start with YouTube, but share your video to Facebook, Instagram, Twitter, LinkedIn, Pinterest and even Slideshare.net. More outlets means more views.
If you’re guilty of any of these video marketing offenses, the good news is that they are all easily avoided. Steer clear of these six common video “fails” and you can go from video newbie to video ninja in no time!
Blunder #9: Not knowing the difference between cashflow and profit
Yes, they are different.
To explain in layman’s terms:
Cash flow is the money which flows in and out of the company from financial activities, investment and other operations. Profit, on the other hand, is what remains from sales revenue after the company’s expenses are subtracted.
In theory, even a profitable company can go broke. Let’s see how: Suppose you bought an item for #1000 and sell it for #2000. Here you made #1000 profit. But, what if the buyer is unable to give money on time? In this case, your business will show the profit—but what about the bills you need to pay meantime? You may not have the cash despite the profit you just earned.
If such mistakes are repeated frequently, you may even go bankrupt.
Keep track of things you are spending versus the selling. It is recommended to review all your financial statements monthly to get a clear sense of the exact situation your business is in.
Blunder #10: Lack of Audit Trail and Failing to reconcile books with accounts.
It’s important that your business reconciles its accounts frequently. Reconciling is the process of checking that an account balance as listed on your books is accurate and correct, ensuring that it matches the real balance of your bank account.
From time to time, small costs and expenses that you might not think about at the time could go unrecorded. Reconciling your accounts—from your business’s bank cash to its payable accounts—lets you accurately track your financial situation.
Small businesses should always reconcile their books every month to ensure all of their transactions are accurately recorded, preventing their books from becoming out of sync with the real status of their accounts.