As a business owner, handling accounting in-house and with manual processes may seem like it will save you the immediate expenses of a professional, but it could be costing your business much more in the long run.
A business's accounting is only as accurate as the figures that are fed into it. Without guidance from a professional, you run the risk of costly errors, tax errors, cash flow disruptions, and more that can negatively impact the financial health of your business.
We've chosen a few common mistakes that businesses make with their accounting that could be costing you if you find yourself making those mistakes.
Incorrect Use of Software (or lack thereof)
Utilizing accounting software may seem like the quick and easy solution to solving your accounting issues. Unfortunately, your software cannot stop you from entering incorrect data or misunderstanding the data that is outputted. When used correctly, high-quality accounting software can be a useful financial tool, but when used incorrectly, it could open you up to unexpected risks.
The first thing to take into consideration is if your current accounting program meets your needs. Are there workarounds needed to compensate for missing features or add-ons that do not directly integrate with your main system? If you answer yes to either of these, new software that can handle all areas of the business may have to be your next step.
The software cannot replace an actual accountant, but working with a professional that can assist with the software you are using can lead to much more efficient practices within your business.
Not Recording Cash Expenses
Cash expenses cannot be looked over for any business. Not recording cash expenses at the time of the transaction can lead to a mess when it comes time to do tax returns. Not to mention it will make the cash flow reports invalid for the period in which the expenses took place.
It helps to be systematic with cash expenses. Find a way to record them right away, like taking a photo and utilizing the features of a good accounting program to immediately match the expense with the image.
If the immediate recording isn't possible, establish a safe place to store receipts and set a time to do a weekly recording. It will save you a headache in the long run!
Late Accounts Receivables Reconciliation
Similar to the cash expense recording, received payments should be reconciled against its receivable in a timely manner. If there is a long delay with this, your revenue account can quickly become difficult to reconcile. This could lead to things such as overlooking unpaid invoices.
Unreconciled payments make it impossible to have a clear and accurate view of your current financials. Without a clear sense of the business's cash flow, decisions can be made based off of false, inflated data that could cause overall damage to your business.
When it comes to trying to clean up accounts, sorting through the payments and invoices that have stacked up is time-consuming and opens up areas for mistakes to be made. Staying current is key when it comes to the health of your financial records.
Overlap of Finances
Simply put, business owners must have a clear distinction between personal and business finances. Overlapping business and personal finances increase the risk of mistakes in the accounting process. These risks could also lead to potential financial audits by outside entities.
All in all, it is best to keep your business and personal finances separate. In situations where it may be difficult, like a start-up, keeping detailed records is crucial.
Not Using Reports Properly, or At All
Any accounting software can generate reports, but what you do with those reports is what creates their value. They can help you make sense of your business's financial health and facilitate accurate predictions about growth, potential issues, and decision-making.
However, if you are interpreting reports incorrectly, or using reports with inaccurate financial data, it could cost your company in the long run. When used correctly, reports are powerful tools that allow you to get the most out of your accounting software and have the best picture painted of your company.
Reporting regularly on a weekly, monthly, and yearly basis will keep you and other managers within the company in the loop and up to date on the status of the overall business and its departments.
What Now? Consider AccountingDepartment.com.
AccountingDepartment.com is a full-charge outsourced accounting service provider for small to medium-sized companies with annual revenues between $2 million and $50 million and funded startups. Our clients moved to outsource for better accounting, DCAA-compliant accounting services for government contractors, and various other reasons.
We remove the burden of developing and managing Accounting, including Bookkeeping, Controller services, AP, AR, and more, by providing an expert team of CPAs and other accounting professionals who understand the special accounting needs of growing businesses.