As a small business owner, making mistakes along the way is bound to happen, but avoiding unnecessary errors will give you a better chance of staying on the right track and not falling into risky accounting situations that could jeopardise your business.
In this article, we’ll guide you through ten common accounting mistakes small businesses make, providing ways to overcome these issues.
Mixing Personal and Business Finances
When you start a business, the best thing you can do once you actively gain income and have business expenses is to open a separate bank account dedicated to business finances. Having a separate account allows you to see all the money coming in and out of the account, facilitating tracking, enabling you to review and report on data, and making BAS and tax time much more manageable.
Not Going Paperless
Of course, sometimes you use paper receipts, and maybe a contractor will give you a paper invoice. However, having a digital system to store data makes reporting and tracking more straightforward, with automated tools providing quick ways to record financial transactions as they occur.
Running The Risk of Not Backing Up Data
While using a digital, cloud-based system is pretty secure, you’ll put yourself in a much safer position if you back up your financial records to avoid losing them or having missing pieces of data when tax reports are due.
Performing Bookkeeping Independently
While you can do bookkeeping independently, it’s best to have professional help to ensure your financial tracking is accurate and lowers financial risks. For example, a good accountant can effectively identify areas of risk or non-compliance, or highlight events that may lead to unhealthy cash flow.
Inaccurate Reporting
Many businesses report financial information after events have taken place, allowing inaccuracies to arise due to entering incorrect numbers. It’s best to report finances as soon as they happen, with digital systems automatically updating and tracking data to minimise inaccuracies.
Failing to Plan Taxes
If you know a tax or GST deadline is approaching, you should get organised and prepared. If you file taxes independently, keeping a steady approach throughout the year is best instead of scrambling at the last minute for financial data.
Billing Plans Lacking Efficiency
Keeping all the dates you have payments due is essential to establishing a steady cash flow. If standing orders come out of your account on different days and you’re running late on specific bills, keeping track of your business expenses becomes a headache.
Failing to Understand Financial Terminology
Of course, only some business owners have extensive financial knowledge. Still, it’ll help to understand basic definitions of terms, such as; cash flow, profits, and revenue, which will ensure you better understand your company’s financial health.
Selecting Cheap Accounting Methods
If you pay for the cheapest accountant and software, mistakes will likely be made in your financial recording. Instead, it’s best to find options that are an excellent investment due to their efficiency and/or value for money.
Not Saving Documents
Although going paperless is advised for efficiency, it’s a good idea to have paper copies of the most important documents, such as; tax returns, payroll tax records, accounting records, ownership records and employee information. Having copies of this data will keep you covered if a tax audit was to occur.
Made An Accounting Mistake and Need to Fix it? We Can Help
We understand how disheartening it is to make a mistake with your business accounting, but we know how to support you. Contact us today for help.