Introduction of new technologies have altered the way people do their business. In fact, technology and advanced software have eased out the working process especially of accountants and bookkeepers. As an accountant, you may also be using software to manage business finance, right. No matter how much advanced software you use, but it will not entirely eradicate accounting mistakes. Every mistake that occurs tends to make some kind of effect in the company. You may be also making mistakes (unknowingly) that can misrepresent your company’s true financial health that can ultimately lead to business failure. Well, this is actually an unfortunate scenario that you can face. If you don’t want to encounter such situation then you need to know some common accounting mistakes that you must avoid making.
In this article, I will cover 5 common accounting mistakes that can lead to business failure. Have a look at the list given below.
List of 5 common accounting mistakes leading to business failure
➤1. Not having proper knowledge of accounting and bookkeeping
Once you start a business, you think yourself as omniscient, right. This is actually a biggest mistake you make here. Even if you have basic understanding of accounting, it will help you how you know the performance of your business. Accounting is most crucial part of any business and having proper knowledge about it is crucial for you and your business. That’s why I am explaining the meaning of both the terms below.
Accounting is a broad category which deals with the process of interpreting and analysing the data the business owner has created. The generated reports give you a clear view of your finances like profit, revenue, or amount of tax so that you can make better decision in future.
Bookkeeping, on the other hand, is the process of recording everyday financial transaction, payroll, business expenses, and income. Well, the accuracy you maintain in bookkeeping can impact the quality of your financial information.
So if you decide to manage books on your own make sure they are accurate otherwise, you can outsource accounting and bookkeeping services.
➤2. Inaccurate cash-flow management
Every business owner must have proper knowledge about how much cash is in the process of inflow or outflow. Eventually, cash is backbone of any business you can also say that cash is king. According to the survey conducted in the USA, 82% of small business failed due to the poor maintenance, lack of understanding, and lack of cash flow management. Same situation goes for UK also.
Just avoid making this mistake otherwise your business will wind up soon. Therefore, you’re required to maintain a proper cash flow so that you can examine the potential issues before they turned out to be a major problem.
➤3. Not recording small transactions
As a businessman, how do you manage small transactions? Do you even record them or not at all? This is general perception of every business that small transactions are not that important to be recorded. This is the reason that they often forget to record small transactions or not consider at all. Doing this actually leads to a major problem and make negative impact on business finance. No matter how petty or insignificant the transaction is, you have to keep and maintain a record of everything. This is actually crucial in retail sectors, where transactions are cash-based. Make sure you record every single or small transaction for the healthy growth of your business in future. This also helps you take important decisions related to your business.
➤4. Poor management of payroll
Firstly, payroll is a list of employees of the company that are entitled to receive monthly payment or salary as well as benefits like incentives, or dividends. Many companies fail to manage accurate payroll and face problems in the future. So there are some issues that occur with payroll services within any size of business:
- Not paying salary (or genuine salary) on time. This seriously affects employees’ motivation towards work and also impact their morale and loyalty if they see you’re facing money crunch.
- Insufficient backup systems of payroll history and records.
- Wrong deductions from employee’s salary.
You can avoid this problem by using payroll software or avail payroll services from us. No doubt, managing payroll is a tedious task so reduce your burden and avail our services.
➤5. Wrong data entry or errors
The last common mistake you have in the list is errors in making data entry. The errors in data entry make unnecessary loss of money. Well, you may not prevent all data entry errors, but you can use some procedures to ensure entries are accurate. The best practices you can use to avoid data entry mistakes include:
- Reviewing the work may times.
- Train your employees well and train often.
- Don’t pressurize your team for work otherwise you will face errors.
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Let’s sum up
If you’re into business, then accounting mistakes are bound to happen. Well, you shouldn’t allow these mistakes to scale down the performance of your business. That’s why you should avoid making the accounting mistakes. A healthy business is one that is free of mistakes even if you’re making above mistakes then I have mentioned the solution simultaneously. You just need to follow them to grow the performance of your business.
Having any query related to accounting? Why not get in touch with us.