Accounting mistakes will happen from time to time, and most can be fixed quickly in a relatively simple way. However, repeated mistakes or major errors in your accounting procedures will have a detrimental impact on your business’s growth and future performance.
Accounting mistakes can be the difference between expanding your business and closing it down due to problems with cash flow and tax. Common mistakes and errors to avoid include:
Falling Behind with Reconciliation, Entries and Accounts Payable and Receivable
It is easy to get caught up with other aspects of your business and push the paperwork and bookkeeping to the back of your mind and to-do list. However, it is vital that you keep accurate records of all business transactions and events. Keeping on top of accounts owing to you will ensure a healthy cash flow and save you from losing income from ageing accounts. It is equally important to monitor and record all expenses, big or small, as extra expenditure can add up fast.
The result of this is that the reports you produce will not be current or a fair representation of your financial standing. This makes it almost impossible to make the correct decision as there will be a distortion between what you think you have and the amount of funds you actually have at your disposal.
Poor Communication or not Consulting with your Accountant/Bookkeeper
If you are using an accountant or bookkeeping service, it can be a costly error not to give them up to date records of your business activity. Losing touch with your accountant can add to extra hours spent on EOFY statements as a result of trying to document a years’ worth of action in a short time frame. It is even important to relay small purchases and costs as they might result in major problems in the future.
It is also a good idea to seek advice from your accountant when making major business decisions as they may be able to suggest cost saving alternatives or a way that might help minimise your tax.
Misusing Accounting Software
Accounting software, like Xero or QuickBooks, is a good way to track money coming in and out of a business, but they are only as good as the information you put in. That’s why it is crucial to know how to use the software you have selected, and take your time when recording transactions as miscoding transactions and other data entry errors are the biggest mistake made by small businesses. The correct use of the software will result in accurate real-time information that can assist you in any business decision you need to make.
It is also important to remember that technology isn’t always the solution and it is important to find the accounting software that is right for you, for example an expensive enterprise accounting system might not be the right choice for small business owners. It is crucial to select the technology or software that matches your needs and leads to both cost and time effective accounting, free of mistakes and oversights.
Failure to Set a Budget
When making major financial decisions or undertaking a new project, budgets can be used to calculate the costs of the expansion and judge whether it the benefits outweigh the risks. Furthermore, budgets can be used to guide a company through change, and even used to rein in a project that has ended up taking longer or costing more than it should have.
Budgets can play many more functions within a business. They can be used as a baseline to judge future financial results, and they can also be used to set business objectives like reducing expenses or increasing revenue. It is important to set and adhere to budgets as they are an effective way of helping a business grow with a clear direction and are an efficient means to judge actual growth against what was projected.
Failure to Keep Personal and Business Accounts Separate
It may sound obvious, but it is important to keep a clear distinction between personal and business expenditure. By keeping separate accounts and cards, it makes it much easier to make financial decisions as a true representation of the business’s financial standing is maintained. By keeping
separate accounts, it also saves you time when preparing tax and clears any issues in the case of an ATO investigation or audit.
© Fitzpatrick Group 2017
Jarrod Dengate – Accountant
Jarrod started working with Fitzpatrick Group in August 2016. He is currently studying a Bachelor of Commerce at the University of Wollongong, specialising in Accounting and Economics.