(These principles often apply to fledgling nonprofits as well…)
Accounting doesn’t just involve keeping the books for tax purposes... it’s also a very important mechanism for saving money and identifying waste, fraud and theft. That's why it's so important for business owners to hire professional accountants instead of trying to do the books themselves or delegating the work to inexperienced staff members. Even successful companies can quickly and easily go broke because of accounting mistakes that result in unpaid taxes, fraud, theft or embezzlement.
Accounting mistakes can include basic math errors, entering data incorrectly and failing to document expenses and income. Here is a list of the 5 most common accounting mistakes that we see.
Organization (or Lack Thereof)
Organization is critical in accounting and record keeping practices. Having a system that works is key. This means using a business credit or debit card for expenses, keeping receipts, ensuring the books are up-to-date, keeping track of petty cash expenses accurately on the day they’re incurred and absolutely not mixing personal and business finances.
As a busy business owner, it is probably common for you to pick up supplies while doing your personal shopping and errands. This can be efficient, however, it’s essential to get separate receipts for business related purchases. Although expenses under $75 generally don’t require a receipt, I always recommend that you get one. In an audit situation, when you can show receipts for all your expenses, auditors are less likely to challenge them. One of our accounting clients recently had an IRS audit and not only were they found to be 100% correct in their bookkeeping but they were also complemented on their super clean record keeping... a simple system that was designed by our firm and that they have consistently practiced for years.
Getting Behind on Paperwork
Business owners often wear many hats and are frequently guilty of putting off doing the books until the end of the month-quarter-or longer... not realizing the vital importance of a timely bookkeeping function. This is a risky strategy because it's easy to get behind on financial statements, reports that need to be filed, such as sales tax or payroll tax filings and payments, vendor bill payments and even billing customers for money that they owe you.
Delayed customer billing can result in mistakes on invoices and lower collection rates in general which will directly affect your bottom line. You could be liable for penalties and interest for filing important reports and payments late... and even lose out on big financial opportunities all because the books aren’t current. If you have to struggle or rush to catch up on your books, it's significantly easier to make costly mistakes.
As a personal example, I really dropped the ball on the simple yet sometimes overwhelming task of processing the mail for my most recently sold enterprise. I intended to find a professional to handle the closing out tasks but failed to do it in a timely manner. But let’s face it - that business was gone and it wasn’t fun thinking about it any more. I was off to bigger and more exciting things! Before I knew it the piles were HUGE! It’s been costly in both time and penalties now for my lack of timely response to a necessary business function. Take it from me - timeliness, especially with the un-fun things, is absolutely critical. Delegate if you have to but get it done.
Hiring the Wrong Person for the Job
If the person in charge of doing your books doesn't know what they are doing, you are the one who ultimately pays for the errors. No employee, relative or friend is going to worry about your books as much as you or a professional accounting company will. The other risk of hiring someone who is not a professional is that the person could easily embezzle funds or steal from you. I’ve seen it time and time again. You think it won’t happen in your organization but trust me... it can and it will.
Being Unwilling to Delegate
Business owners are often unwilling to delegate their bookkeeping to experienced accounting professionals.... whether it’s because of price-point concerns, a misguided feeling that outsourcing is not a secure solution, or just simply not realizing the inherent risk of not having it done properly and in a timely fashion... yet business growth depends on the critical leadership ability to let other professionals handle anything outside of your business core competencies.
Simply put, you have to be willing to let other people do their jobs while you do yours. You need expert advice and an experienced accountant to maximize your income and minimize taxes and other expenses in order to be as financially successful as you can be.
Poor Systems of Communication
Poor communication between you and your bookkeeper can result in serious mistakes or omissions in your records, report filings, and can result in everything from impossible to reconcile statements to inaccurate financial data. It's easy to forget that you paid someone a bonus in cash or gave a cash discount unless you have a system with which to document it and convey it to your bookkeeper.
If you want to keep the most profits from your sales and expenses, you need to utilize an experienced accountant or bookkeeping service to handle your books the right way and help you avoid errors, find savings, and uncover business opportunities based on your financial picture.
In Summary -
An organized system of record and bookkeeping, communication, and internal controls will help save you from the pitfalls of costly accounting mistakes.
We can help you design and implement a system that works for your unique business or organization.
Contact us today to discuss sBs Growth Coaching™ options for help with creating a road map to success and using task management to break down that map into actionable items that will lead you to your goal.
https://www.s-b-services.com/get-started
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