We know that accounting is never a small business owner’s favourite task. It is, however, vital that you keep on top of your accounts to prevent money from leaking out of your company. The following accounting mistakes could mean that your small business is losing profits without you even knowing about it. Once you know – these are easy to fix.
Let’s take a look at six accounting mistakes to avoid:
1) Overly Generous Payment Terms
Decades ago, 30- or 60-day payment terms made sense. It could take weeks for cheques to be processed and invoices to be sent back and forth in the post. However, in this day and age, it is no longer necessary to be so generous with your payment terms. Thanks to the power of email, it takes mere seconds, rather than multiple days, for an invoice to reach your client’s inbox. Meanwhile, digital payment methods mean that it’s faster and easier than ever for them to pay you. Shortening your payment cycles will see money in your bank account faster and make it significantly easier to manage your cash flow, which is the biggest challenge facing many business owners.
2) Failing to Balance Bank Statements
It’s vital that you balance your checking accounts every month. Mistakes happen often – you may be accidentally undercharged or overcharged, send transfers for the wrong amount, or receive payments that weren’t intended for you. The faster that you identify and resolve these mistakes, the better. If left unnoticed, these errors can compound over time, cause you to misunderstand your financial situation, and create a huge mess.
3) Lax Invoice Management
Failing to stay on top of your invoices can create huge cash flow problems. Sending an invoice late, for example, will likely mean that you get paid late, too. Equally, failing to send out payment reminders or chasing up on customers whose deadlines have passed may leave you out of pocket. It’s a good idea to use cloud accounting software to automate much of your invoice management and keep track of who has or hasn’t paid. You should also create a strict follow-up schedule to ensure that your clients pay on time.
4) Not Balancing Cheques and Invoices
No business owner wants to believe that their employees will steal from them, but it happens more often than you’d think. One of the easiest ways for employees to steal from companies is to create fraudulent invoices for vendors that do not exist. Therefore, it’s important that you are vigilant and careful about which members of staff are able to create new vendors using your accounting software.
5) Poor Inventory Management
Mismanaging your inventory can create significant cash flow problems. Too much inventory means that an excess amount of working capital is tied up in goods, which can cause your cash flow to stagnate. Furthermore, inventory that expires or becomes outdated can cause a huge drain on your finances. Conversely, too little inventory means that your customer fill rate is too low. If your loyal customers cannot get the products they need from you, they may well defect to your competitors instead.
6) Failing to Keep Track of Business Expenses
Last but not least, failing to keep track of your business expenses will result in you losing out on write-offs and paying more tax than you need to. It may seem like a hassle to have to log every minor expense, but they really add up over time. It’s a good idea to use cloud accounting software that connects to your business bank account and allows you to upload pictures of your receipts. This way, you can keep an organised log of your transactions without spending a lot of time doing so.
Is your business making these accounting mistakes?
Correcting the above accounting mistakes can save your small business time and money, as well as improve your cash flow and overall financial health. While accounting isn’t many business owners’ idea of fun, it’s important to recognise the impact it has on your enterprise. If you are struggling to manage your accounts, then it may be time to outsource to a quality accountant who can make the process significantly easier for you, as well as offer shrewd financial acumen and insight.
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