5 Accounting Mistakes That Could Be Costing You
Some small businesses claim they can't justify the cost of outside professionals working on their books, but they aren't considering what it costs to not have a professional help. A true accounting professional, or detailed accounting software, may result in more accurate bookkeeping. It can also mean cleaning up multi-year record keeping disasters while saving time in the process.
From lay-offs to company degradation, to legal issues, if a company earns the reputation of consistent accounting mistakes the effects can be daunting. What can happen when company books aren't accurate?
- An organization can be audited
- Weakened reputation
- Losing power to negotiate
- Depreciation of company worth
- Loss of company
- Civil and criminal penalties
Companies that cannot hold themselves accountable for their financial outcome may have a much harder time with bankers and investors. And claiming, "I just didn't know" won't engender any sympathy.
Here are five accounting mistakes to avoid in order to paint an accurate picture of your company's financial health.
1. Hiring the Wrong Type of Accountant
Upon hiring an accountant, consider whether the new hire is a tax preparer or an advisor. Although the titles seem synonymous, for full visibility into your organization's financial opportunities and risks you'll most likely need an advisor. An advisor will help develop a fiscal process to rely on; a tax preparer may only focus on the task at hand. Any mistakes may cost a business everything from its reputation to its survival.
2. Inflated Profitability
Some accounting mistakes may result in overestimated company assets. When this error is discovered, the issues that result could range from not being able to afford annual raises to bankruptcy. An accounting professional should be able to answer what your company holds in assets and if they are being overstated, what developing trends your financial statements are showing, and what financial areas within your organization may be improved. Without this deep understanding of a company's financial statement, profits cannot be maximized and fiscal problems will continue to mount.
3. Not Implementing an After-the-Fact Costs Analysis
Without a strong understanding of your monthly, quarterly, and annual revenue streams through an after-the-fact cost analysis it may become difficult to evaluate the accuracy of financial estimates and determine what the company is making per project, per client, or per product. Did cash outlays exceed the return? Were fiscal issues a result of spending too much to produce the work and quoting customers prices that were too low? Without an after-the-fact cost analysis it becomes a challenge to pin point when a company is leaving money on the table, or exceeding their budgets.
4. Not Taking Advice
Keep in mind most small business owners are not financial professionals, which is why it was necessary for them to hire an advisor in the first place. Business owners should consider an advisor's recommendations about finances, including which clients or products deserve the most attention. The answers may help save or even make money for the business.
5. Ignoring the Importance of Consistency
Lack of consistency can result in a broken accounting system. If it isn't consistent, the numbers may not be accurate. Here are some inconsistencies to avoid:
- Determining product costs differently each order
- Not keeping expense receipts
- Not staying on top of receivables
If an organization constantly changes the way they are tracking money, or has loose regulations, any sort of fiscal system becomes obsolete. Consistency is the only way to paint a true picture about a company's cash health.
It's important to know how accounting mistakes can affect a business. Without the assistance of an accounting professional or software, there may be no way to avoid the negative results of accounting mistakes like these.