Accounting mistakes are one of the easiest ways to lose money. Many small business owners make at least one of these eight common accounting errors, costing them thousands of dollars annually. If you need help figuring out where to start when it comes to accounting for your business, this guide will help!
5 Common Accounting Mistakes That You Must Avoid
Small business owners often make mistakes when it comes to accounting. Here are five common errors that you should avoid:
1. Not Keeping up With Bookkeeping
Keeping up with bookkeeping is one of the most important things a small business owner can do. If you don't know where you stand financially and how can you make sound financial decisions? How can you evaluate which strategies are working and which aren't?
The answer is simple: You can't. Keeping up with your bookkeeping allows you to keep track of your cash flow and record all transactions in an organized manner that makes sense for your business.
2. Handling Your Own Accounting
A lot of small business owners handle their own bookkeeping and accounting. While this is an excellent way to save money on an outside accountant, it also means that you won't have the benefit of someone else's expertise.
If you don't know what you are doing, it can lead to mistakes like not recording transactions properly or forgetting important financial documents such as invoices and purchase orders. These mistakes can eventually lead to a loss of money, which could have been avoided if you had an experienced bookkeeper on your team.
This is especially true when it comes to taxes since mistakes can mean you owe the government more than you should.
3. Not Allocating Funds for Projects in Advance
One of small businesses' biggest mistakes is not allocating enough money for projects. This is especially true regarding major purchases or capital expenditures that will take a long time to pay off. If you don't have enough money set aside, you could get into trouble if something unexpected happens.
For example, if you purchase new equipment for your business but only have enough money for half of what you need, you'll be forced to put off the purchase until you can find the rest. This could mean your business operates at less than optimal efficiency until the purchase is made.
4. Failing to Match Transactions Correctly
Mismatching transactions is a common mistake that can lead to significant errors in your accounting system. You must match the right transaction with the right account to be able to tell what has been spent or earned. For example, if you sell products to customers but record them as an expense rather than revenue, you won't know how much money they bring in.
5. Not Having a Separate Checking Account for Your Business
If you're not careful, your business checking account can get mixed up with your personal one. This can lead to serious cash flow problems and loss of tax deductions for any business expenses you incur.
Separating your business accounts from your personal ones is the best way to avoid these mistakes. If you're starting out and don't have a separate checking account, talk with an accountant about how you can set one up.
You can avoid many accounting mistakes by paying attention to your finances. You should prioritize reviewing your financial statements regularly and keep track of all the data that goes into them. This will help you spot mistakes and prevent them from happening again.
To help you with your bookkeeping solutions, Yasso Bookkeeping Solutions provides expert bookkeeping services to small businesses. Our experienced team will ensure you stay organized and on top of your finances. If you're interested in learning more about our services, contact us today to schedule an appointment!