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Top 7 Accounting Mistakes Small Businesses Make

Top 7 Accounting Mistakes Small Businesses Make

With all of the important tasks that small business owners take on, sometimes accounting can take a back seat. Owners deeply involved in all aspects of running their business may put together a system without a strong understanding of what needs to be tracked and how. A lack of disciplined practices at the beginning can also, over time, lead to bookkeeping errors and accounting mistakes that become more pronounced. Some accounting mistakes are minor and, when they are found, simple to correct. Others can cause complications that require extensive and expensive work to bring your books back to health. Wondering where businesses are most likely to go wrong? The mistakes below are among the most common ones.

  1. Slipshod bookkeeping.

In a small venture, it can be tempting to let little things slide. Small expenses may not be recorded as they should. Minor changes in billing may go unnoticed. However, effective accounting that gives you a true picture of the health of your business means recording everything. A small error that is repeated each month could, over time, turn into a major discrepancy. Assets and liabilities must all be properly categorized. Every expense must be noted. Books and accounts must be checked regularly to ensure that they are accurate. Without this, it is impossible to get a clear idea of your business's health.

  1. Confusing profits and cash flow.

If your company has just closed a large deal that will take a number of months to fulfill, it is a mistake to count profits too soon. There are too many things that can happen that may increase your costs or delay your delivery, meaning that the profit cannot be securely counted as cash flow.

Recording every new deal as income for your business can leave you with an unrealistic idea of your cash on hand and your spending power. This, in turn, can leave you exposed to overspending and other threats to your business's financial health.

  1. Failing to distinguish between employees and contractors.

Your business's responsibilities to contractors and employees are different. Each needs to be handled differently in your books to assure that you are paying them correctly and accounting for tax differences and other factors.

  1. Never reconciling your books and your bank accounts.

Errors happen. Numbers can be miskeyed. Personnel may fail to record small expenses. Ensuring that your books and your bank accounts are reconciled and any discrepancies accounted for is essential to accurate books.

  1. Not assigning clear budgets for every project.

If you go into a project without a firm budget in mind, it is easy to overspend. Having clear expectations at the start can help ensure that you allocate the right amount to make a project profitable. A clear budget can also help you decide which projects are worthwhile and which ones are not a good use of your resources.

  1. Communicating poorly with the person in charge of bookkeeping.

Your bookkeeper needs to be fully informed of every transaction so that they can do their job effectively. By setting up a process that allows for good and consistent communication, you can make it easier for them to accurately track your income and outflow.

  1. Trying to handle all accounting tasks in-house.

Highly involved owners may feel very protective of every aspect of the businesses that they built. However, knowing when to outsource a duty to more qualified hands is the mark of effective leadership. Having the right people in charge of accounting tasks means that they are handled correctly and can give you the ongoing picture you need of your company's health and its future.

Are you in danger of making accounting mistakes that can hurt your business? Get in touch with a professional CPA. We can assess your situation and make the best recommendation for you.

Frank Jenkins, CPA writes for TaxBuzz, a tax news and advice website. Reach him at [email protected].

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Frank Jenkins Jr

Frank Jenkins Jr

Frank Jenkins Jr. is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, accounting, audit & assurances. "I genuinely care about our clients because I have a personal connection with them. This job requires me to multi-task and work under tight deadlines. I get great professional satisfaction from balancing firm and client commitments while building a strong team here at AJC."

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