Accounting mistakes can happen to anyone – and even the smallest of mistakes can have ripple effects on the rest of your business. By keeping an eagle eye on your books, you can track every last detail of your finances, and get ahead of any mistakes you do come across.
We’ve compiled a list of the most common accounting mistakes business owners make so that you can avoid them…
1. Human error
Let’s start with the most obvious one, and one of the most common causes of unnecessary financial loss: human error. After all, humans aren’t robots, and not everyone has a knack for accounting.
While advanced software has undoubtedly made data entry much easier, it hasn’t eliminated the risk of mistakes completely. Common data entry errors include duplicating a single entry, recording it on the wrong account, or omitting it entirely. One way to avoid this is by having a second pair of eyes on the books.
While it’s best to have at least two people handling the finance function of your business – for instance, one person making key decisions and another providing administrative support – if there’s a lack of communication between the two, it can lead to extra work for everyone.
To combat this, make sure there’s a detailed log of all your activity – recorded chronologically. If it’s a live document (so each person is always looking at the most up-to-date version), even better.
3. Missing documents
If you’re not a bookkeeper by trade, there may be some ambiguity around which records you should keep. As a general rule of thumb, you should have clear records of all:
- Sales and other business income
- Purchases and other business expenses
- Amounts deducted from the business bank account
- Amounts paid into the business bank account
- Mileage, complete with journey details (if applicable)
Most importantly, you’ll need to retain these records for future reference. Even the smallest transactions require a receipt. At the very least, we recommend creating a dedicated folder on your computer for this purpose – and this folder should also be backed up.
4. Mixing business with personal
Whether you’re depositing personal money to pay for business expenses or using a business card for personal expenses, mixing the two creates confusion when it comes to determining which funds or assets belong to who.
The best way to avoid this is by taking care to always keep them separate – this ultimately reduces personal liability and maintains your professional reputation.
5. Poor forecasting
In business, your solvency is measured by your ability to meet any long-term debts and other financial obligations. That’s why strategising is crucial to your financial future as a company.
Identify peak periods in your business timeline – along with quieter periods, during which you may need to scale back. Making forecasts for your financial future in this way also prepares you for any unexpected or rising costs, and it protects your relationships with suppliers too.
6. Invoicing issues
Invoicing issues can lead to late payments, meaning disgruntled clients or uneven cash flow on your part. So, keep everything running smoothly by staying on top of your invoices.
Still processing paper invoices? Save time by switching to digital. Other time-saving improvements you can make to your processing procedure include defining your accepted payment methods, outlining clear timescales for certain actions to occur, and including an expected payment date on the invoice itself.
7. Trying to do it all yourself
Finally, one of the biggest mistakes you can make with your business accounts is simply balancing all of the books on your own.
In the very beginning, managing everything yourself may seem like the most cost-saving solution – but it can actually lead to greater expenses later down the road. When you get the very most out of them, an accountant can be invaluable.
How we can help
Here at Nabarro Poole, we channel years of accounting expertise into keeping track of every aspect of your business finance – allowing you to focus on what really matters. Speak to a member of our team today.