Small business owners usually experience a range of emotions in the beginning of their operation—excitement for what's to come, some confusion along the way, and fear of making mistakes. While your initial business plan may shift, your product may change, or your business moves its location, one thing that's crucial for your business to get right from the start is proper bookkeeping. In this article, we'll explore some common accounting errors made by small business owners, and how to avoid them.
1. Data Entry Errors
Even the tiniest mistake in recording payment data can lead to trouble, such as unpaid sales tax resulting in interest charges and penalties. It’s important to double-check all entries and reconcile your accounts against bank statements every month. Creating digital copies of financial documents and balance sheets for review is vital to help prevent accounting errors.
2. A Gap between Payables and Receivables
If the repayment terms your vendors give you and the terms that you give your customers don't match up, this can cause unbalanced books and a lot of unnecessary headaches. Compare the repayment terms with your vendors with those of your customers and decide whether you need to negotiate with either side. If that's not possible, talk to a bank about your options.
3. Counting Sales as Income Too Early
Unless a product or service has been delivered, don't count the sale as revenue just yet. Recording a good month of sales but not delivering the product until after the end of the sales period could create a false sense of profitability, and also affect future forecasts.
4. Giving Financial Control to One Person
Leaving all of your financial tasks in the hands of one person could put you at risk for accounting errors, or worse—fraud and theft. If there's no one double-checking the books, there's a good chance data entry errors could go unnoticed until it's too late. If you can avoid it, try to coordinate that the person who records the bills and payments isn't the same person signing the checks and making deposits.
5. Not Asking for Help
You don't have to do it alone. Accounting software is an easy and efficient way to take control of your finances and reduce accounting errors. Not sure how to set up the software? Hire someone to install it and show you how to use it properly. Business advisors, financial planners, and part-time bookkeepers are great resources for small business owners.