6 Accounting Mistakes that put small Businesses at risk
Accounting Mistakes to avoid
Accounting is an important element of every business and is not as simple as adding and subtracting. Small firms frequently consider managing their own accounting in order to save money, but this may not be the best option.
Accounting blunders can be extremely costly to a business. You don't want to mess up your figures because it will stymie your company's progress. Due to a lack of effective accounting practises, small business owners frequently make mistakes in their early years.
Are you apprehensive about your upcoming major business decision? What about real-world findings that can be put to use? We're talking about a yearly review of your financial statements. It's possible that you've spent money on assets and projects that haven't generated enough revenue to justify their expense. Don't make the same mistakes over and over again. Speak with one of our small business accountants in Croydon about expanding your revenue base.
Here are six frequent blunders that every small business owner should make an effort to avoid.
1. Attempting to do everything on your own
Entrepreneurs, since they are passionate about their business, have a propensity to want to do everything themselves. You may have been the sole person in charge of everything when you initially began out. The issue emerges when you attempt to manage your accounting on your own, as you may discover that the quality of services truly degrades. Accountancy is vital for your business as it expands, but the labour involved is time demanding.
Let's face it: you can't do it all on your own. Learn how to delegate some of your tasks to others.
2. Choosing the cheapest techniques
Always looking for the lowest ways to save money on business expenses will end up costing you more money in the long run. For example, suppose you hire the cheapest accountant, who appears to be the least expensive and hence the best option at first glance. But what if they make regular errors in your payroll taxes, preventing you from submitting the application on time?
"You get what you pay for," as the old adage goes.
3. Ignorance of the distinction between cash flow and profit
They are, indeed, distinct.
To put it in layman's terms:
The money that moves in and out of the company as a result of financial activity, investments, and other operations is referred to as cash flow. Profit, on the other hand, is what remains after deducting the company's expenses from sales income.
In theory, even a thriving business can go bankrupt. Let's look at how: Assume you bought something for $100 and sold it for $200. You made a $100 profit here. But what if the customer is unable to make the payment on time? In this situation, your company will profit—but what about the bills you must pay in the meantime? Despite the profit you just made, you may not have the funds.
If such errors are made on a regular basis, you may go bankrupt.
Keep note of what you spend vs what you sell. It is essential that you analyse all of your financial statements on a regular basis to acquire a clear picture of your company's current status.
4. Integrating business and personal budgets
This is a quick and easy technique to destabilise your company's finances. When starting a business, the first thing you should do is open a bank account. All income and expenses should be routed through this business bank account.
However, you may still be paying for many expenses out of your own money, so keeping track of such expenditures is critical. These are valuable tax breaks. You cannot deduct it if there is no record, which will cost you money in missing tax deductions.
5. Failure to make use of software or cloud technology
All of your bookkeeping needs, including as payroll and budgeting, may be handled automatically with the help of software. This results in a quick turnaround time, allowing you to focus your valuable time on other things, such as running your business.
Many accountants and CPAs swear by Microsoft Excel's efficiency. However, keep in mind that Excel is not as complex or interactive as professional accounting software. In Excel, for example, there is no method to check for human errors. Cloud accounting software, on the other hand, uses a double-entry mechanism that eliminates such errors. According to a Gartner report, cloud computing will account for the majority of new IT spending by 2016.
6. Failure to perform frequent backups
Many SMBs and accountants are unaware of the significance of maintaining regular backups. Be prepared for extreme events, in addition to computer malfunctions and lost or stolen equipment. A fire in your office or a flood caused by a burst pipe can destroy all of your data and documents, and this can happen even if your locality is not prone to natural disasters.
Having numerous backups for optimal protection is critical for organisations, as it ensures that you will have access to the data for years to come. Backups can be made using internet services that store data in an encrypted way.
Best Croydon Accountants provide services relating to accounting for sole traders, small enterprises, start-ups, contractors, and a variety of other businesses in the Croydon area. So, if you require service, please do not hesitate to contact us.