Accounting is a significant function of any small business. If it is neglected and errors are made, bookkeeping can hurt a company to a great extent. Messing up your numbers can impede the growth of your small business, so while it is not one of the more glamorous jobs, precise accounting is at the heart of all successful small businesses. So before you dive in and balance the books, you’ll want to make sure you avoid these 5 common errors:
1. Forgetting to Make Entries
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. If you’re not recording deposits accurately or depositing funds into the correct accounts, you’re impacting your bottom line. Avoid this accounting mistake by making sure you have an intuitive accounting system established for your small business and that you’re keeping it up to date.
2. Trying To Do Everything Yourself
When you first started your small business, you may have been the only person handling your financial accounts. However, as your business grows, managing your books on your own is a lot more challenging. As a business owner, your time is valuable. You should be focused on what your business needs to grow. If you’re spending all your time on the accounting aspect of your business, the rest of your business may begin to suffer. If this is the case for you, it may be time to hire an accounting professional to handle your accounts. According to an Entrepreneur article:
“Many small entrepreneurs can probably stick to outsourcing accounting or bookkeeping services for quite some time. . . It’s time to hire full-time help, though, when you’re calling your accountant often enough that you wish he or she were in the office all the time. Bring in a full-time bookkeeper when your part-timer is spending two or three full days in the office and still falling behind.”
3. Only Focusing on the Short-Term
When you’re so involved in the day-to-day operations of your business, it’s easy to become fixated on managing its short-term success. However, when you’re looking to grow and expand your business, it’s important to remember that accounting is not just about keeping track of today’s numbers. A large component of your accounting should include forecasting future growth and identifying financial risk. Being aware of these things can help you make good business decisions. In this article, Entrepreneur identifies the best practices for forecasting revenue and growth, including how to use gross margin and profit margin to reconcile revenue and expense projections.
4. Mis-categorization of Expenses
There are fairly standard categories for expenses. However, expenses are often entered into the wrong categories or too many new categories are created. This can make balancing your books confusing and waste a lot of your time. If you need help, this simple guide includes a list of general guidelines for standard categorization of your expenses.
5. Not Invoicing Clients in a Timely Fashion
Invoices should be sent immediately after the product is delivered or the project has been completed because the sooner you bill a client, the sooner your revenue is available as working capital. Ultimately, this process impacts profitability. For this reason, it’s extremely important that your invoicing processes are as streamlined as possible. In many small businesses this can be a challenge. The free online invoice generator on Viewpost can help improve efficiency and eliminate paper when you invoice your clients. Learn more about it here.
As a small business owner, other issues may often take precedence over accounting. However, it’s important to remember that your accounting system is an essential part of your small business and should be seen as an investment. If you take an active approach to your bookkeeping, your business is sure to see a healthy boost in performance.