As we are getting ready to welcome the dawn of a new year, most of us have a list of “new year resolutions” for 2018. And, if you’re a proud owner of a start-up /small business, handling accounting more systematically and efficiently, might be one of the resolutions in that list!
Your concern is valid. After all, accounting errors pose serious challenges for businesses. While some errors may be minor and even insignificant, others may lead to financial losses, affect decision making, and sometimes may even lead to staff layoffs, insolvency or closing down your business!
Here are five of the most common accounting mistakes and how they can affect your business. Take note of them for efficient accounting.
1. Not keeping separate accounts for personal and business finances
Probably the biggest mistake many small owners do, is not having separate bank accounts for their business and personal transactions. This leads to messing up your business accounting and can get you in financial or even legal troubles.
Always keep separate accounts for your personal and business transactions to better manage and track your business transactions and avoiding unnecessary confusions.
2. Trying to manage all your accounting on your own
It seems reasonable and cost-effective to do so if you own a small business. After all, the salary for an accountant would be an added expense to your business, right?!
As tempting it may seem, it may cost your business more than the accountant’s salary you saved! Since you are not an expert, there may be some tax deductions you didn’t know, or you commit some accounting errors that only an expert can notice. Add to that the new GST structure and you may not be well versed in it.
Hire a professional. Let the experts do their job and you focus on your business growth and performance instead! And subscribe to an efficient accounting software like Giddh.
3. Failing to keep expense receipts
Many-a-times, business owners become ignorant and fail to keep receipts for all their business expenses. As a result, you’re not sure about your expenses if your bank account statements and books do not match.
This may also lead to inaccuracies in reporting expenses at the time of filing for taxes and will lead to penalties if you get audited and you are unable to produce a receipt for any mentioned expense. Special care should be taken to track the expenses made in cash besides those which involve online transactions made from your bank account. Make sure to save your expense receipts and note the same in your books.
4. Not taking note of your payments
For any product/service you offer, your customer owes you a definite sum of money. You send them invoices for the same. In accounting lingo, these are known as your “receivables”.
Ideally, as soon as your customer pays his/her dues, you should mark it “paid” against the invoice and update the entries in your books accordingly. But many-a-times we delay it and then it becomes difficult to remember and reconcile the receivables and to chase the due and late payments.
Using a good accounting software like Giddh may be a great help, as it lets you generate invoices directly from the entries and mail them to the customers. You can mark invoices as paid, unpaid or partially paid in real time to systematically track your receivables.
5. Not frequently reconciling books with bank accounts
It is important to reconcile your books with bank accounts frequently, preferably every month. Reconciliation brings out any errors committed in either cash book or passbook. It highlights any undue delay in clearance of cheques.
Small businesses must prepare a monthly bank reconciliation statement to ensure that all their transactions are recorded accurately, and their books remain in sync with the real status of their accounts.