Mistakes are inevitable. It is a part of human nature. However, we can always be cautious about them as some mistakes cause you troubles which you cannot easily get rid of.
When it comes to accounting mistakes, you lose money. As a business owner, you never would want it. Poor accounting will impede business growth. A sound accounting process is pivotal for the financial health of your company.
Seasoned businessmen always put the best accounting practices in place to ensure fiscal growth.
Major accounting mistakes that you must avoid.
Mixing up profits and cash flow
It is easy to know but sometimes hard to understand. Cash flow is the money coming in and going out of your routine business operations. Profit is all you have left with you after subtracting expenses from revenue.
Be practical while measuring profitability. For example, you sell an item for $100 which you have bought for $50. Apparently, you make a profit of $50. But for some reason, the payment is delayed and the amount is not deposited in a bank account. It should not be considered as a cash inflow.
If you count it, you have to cover it up out of your budget. Such mistakes can lead you down to a significant loss. These sorts of companies that are only profitable on paper are likely to go bankrupt.
Missing RASCI matrix
RASCI matrix is a method to define and assess the responsibilities of individuals for a specific set of tasks within organizations.
Let us break down the acronym for the comprehensive understanding
R stands for Responsible – A person who is solely responsible for an allotted task.
A stands for Accountable – A person who is held accountable for the task. It is his/her responsibility to look after it.
S stands for Support – A person assisting or supporting the execution of the task.
C stands for Consulted – A person who is supposed to be consulted before commencing the task or during any stage of implementation.
I stand for Informed – A person who needs to be informed as the task progresses or every development of the assignment.
RASCI matrix brings transparency to the process. It clarifies the roles of employees and creates a roadmap to achieve a goal collectively. You must adopt the RASCI model to your accounting procedure to eliminate errors.
Lack of standard policies
You have to implement standard policies to monitor the operational process at every level of an organization. Establish an accounting system that supervises and checks profits and losses immaculately.
It is important for employees to take up ownership of what they do. You need a sound internal control system that evaluates the operations as well as detects errors out it.
Not differentiating between personal and business transactions
The easiest way to muddle your finances. Creating a dedicated bank account for your business is the first step, to begin with. It separates your personal and professional accounts.
Manage all your transactions through business accounts. It will help track all your incomes and expenditures. Don’t mix up these two accounts for flawless bookkeeping records.
It will also save you from paying extra taxes. You cannot deduct the amount without fair records as you pay it off out of your pockets.
Not catching up with the latest technology
Technology has impacted almost every aspect of our lives. It has made complex tasks easier and faster for us. It automates processes and the turnaround time is way higher.
If you are not using cloud technology, we strongly recommend you take advantage. Without the latest technology, you are allowing your business to take a hit on it.
It is essential today not just to adopt technology but upgrade at regular intervals as well. It improves efficiency and accuracy. It saves time that allows you to focus on the core business task which you are primarily supposed to do.
Most of the accountants are familiar more or less with accounting software and tools. If you are not tech-savvy, we suggest you approach accounting software consultants who help you choose the best cloud-based software and tools.
Failing to reconcile books
Bank accounts reconciliation is an absolute necessity. This practice should be done frequently as much as you can. It ensures accuracy in bank records. It scrutinizes your transactions monitoring expenses and incomes.
Small businesses must always reconcile their bank accounts from time to time. It prevents them from accounting frauds and eliminates errors.
Not taking accounting seriously
If you think accounting is not a priority and other business tasks are more important, you are guaranteed not to make profits.
Accounting is one of the most crucial aspects of any business. Consider it as a priority and give due attention to it. It doesn’t matter how small or big the business is; sound offshore accounting helps you determine the financial health of your company.
Not outsourcing to save money
Sometimes, trying to save money makes you lose it even more. Let the best people do the job. They know how to do it.
As a small business owner, it is obvious that you try to do everything in-house to save money. But you simply cannot compromise with accounting.
Your time is precious; invest it in things you are good at. Hiring accounting experts or outsourcing to accounting firms is a wise thing to do.
As a non-accounting person, many times, you end up paying extra taxes. Accounting experts will save you a lot of money by keeping your finances updated.
Ultimately, it all comes down to money. Accounting is an integral part of your business. Managing accounts is of utmost importance to make sure the financial health of your company is not in jeopardy.