The importance of keeping accurate business accounts cannot be overstated and, while most accounting mistakes are not deliberate, they should not happen. The tax a business pays is calculated from the profits generated by a business, which is why they should not contain mistakes and may incur penalties if they do.
The first common mistake that many businesses make is not reconciling their business accounts with their bank accounts. It is easy to forget to include every expense in the accounts. Every month, it’s good practice to reconcile accounts so that your business accounts accurately reflect all income, expenses and what is actually in the bank.
Some people mix up their personal and business finances, especially if they are sole traders or freelance workers. Any expenses put through the business must be clearly business-related even if paid for by a company credit card. A romantic meal with a loved one, for example, is not a legitimate business expense.
Accounting software makes bookkeeping easier, but software cannot protect businesses from common mistakes. Many accounting applications are complicated, and mistakes can be made due to not understanding how software works. People using accounting software need to spend time learning how it works, perhaps even taking a course if necessary.
Another common mistake is losing receipts. If travelling on business, workers often carelessly stuff receipts into pockets, then lose them. An expensive hotel stay may be a legitimate business expense, but without the paperwork, it should not be entered into the business accounts.
Often, people under prioritise accounting by assuming it’s only about keeping track of day-to-day income and expenses, when in a successful business, accounting is more than this. Accounting should include long-term income and cash flow predictions. Future growth should be anticipated and plans made to accommodate expansion. This could mean hiring more staff, or expanding office space to cope with a business growth.
How can I avoid accounting mistakes?
You can take small steps yourself to become more accountancy-savvy, but outsourcing financial management could be the best move you can make.
Hire a good accountant. While an accountant may not be responsible for the bookkeeping, he or she will be able to pick up any accounting mistakes that the business bookkeeper makes.
Using a financial outsourcing service is the ideal solution to avoid accounting mistakes. A financial outsourcing service can take over the bookkeeping work, financial planning, credit control and management accounting.
Accounting mistakes are easy to make. It makes sense to outsource the accounting for your business so that these slip-ups become things of the past.