Most common bookkeeping mistakes; Poor financial management is one of the leading causes of business failure within the first five years of starting up. Many small businesses make bookkeeping errors and costly mistakes or they simply neglect to give their books the attention that they need, meaning they lose track of their finances and eventually, lose control of their business. Here are some common bookkeeping mistakes small firms need to avoid. 1 Combining business and personal finances This is one of the fastest ways to make a mess of a business’s finances. Regardless of size, turnover or profits, personal and business finances should never be mixed. All business income should be deposited into a specialist business account and expenses should never be drawn from personal funds. 2 Neglecting fundamental duties Once a month, a business’s books should be reconciled and matched up with a business bank statement. This is a fundamental task that many businesses neglect. Not only can it help you to keep on top of the incomings and outgoings, but it can also help you to spot discrepancies most commonly associated with fraud. Accounting errors can also be corrected in a timely manner before they end up causing problems further down the line. 3 Losing track of petty cash It is basic practice within many businesses to keep a certain amount of petty cash that can be used to purchase everything from office supplies to stamps. However, it is very easy to get frivolous with petty cash. Many businesses get into a mindset where small amounts don’t need to be recorded in an official way. But small amounts add up to larger amounts and if a business isn’t keeping track of its petty cash, it can start to create discrepancies on the books. 4 Not knowing the difference between cashflow and profit Cashflow and profit are two entirely different things. A business can be profitable with terrible cashflow or have positive cashflow but still not be turning a profit. Businesses must not fall into the trap of assuming that just because they have a healthy cashflow, it means that their profits will be healthy too. 5 Failing to seeking professional help It can be tempting to attempt to cut costs and try the DIY method of accounting and bookkeeping. However, without the expertise offered by a professional accountancy or bookkeeper, things can often go awry. If you’re not careful, not knowing when to seek the assistance of an experienced accountant can prove to be a fatal error.
Posted on: Mon, 02 Sep 2013 08:10:00 +0000
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