Most small companies are always busy finding ways and means of expanding their business, this leaves them with little or no time to look after bookkeeping. Hence, it is usually noticed that small companies rarely have their accounts and records maintained on a regular basis. Such negligence on their part to maintain proper accounts and records renders others issues to crop up and thus hampers their business growth.
Small companies think that bookkeeping is a mundane task and it can be delayed but they fail to understand that this is a very important tool for business management. They also do not understand the mistakes they make until they get the help of a professional and when they seek help it may be too late. Thus, it is very important for small companies to understand the underlying fact that if they do not take professional help, they can make many mistakes which would lead to difficulties like inability to balance books of account, difficulty in cash planning, budget forecasting, planning taxes, etc.
Some common bookkeeping errors/mistakes that small businesses should avoid are:
1. Not keeping hard copies as backup:
Small companies tend to depend too much on technology, to save time and money they rely on modern technology and save all receipts, invoices, and records online. If by any chance something happens then all data would be lost or compromised. Hence, it is important to keep hard copies to avoid loss of data and ensure their availability at fingertips.
2. Handling petty cash incorrectly:
Small companies operate with small amounts and hence do not track it properly. It is important to have a proper system to manage cash on hand so that companies know exactly where the cash is used and how much cash needs to be kept for daily use.
3. Not keeping track of small amounts:
It seems very easy to lose small receipts and expenses, however, it is these small amounts that usually mount up and if not tracked properly would create problems in accounting. Hence, no matter how small an amount may seem, it has to be properly accounted for and all receipts of the expenses should also be kept for future reference.
4. Categorizing expenses wrongly:
Improper knowledge of bookkeeping may lead to categorizing expenses in wrong heads, this, in turn, would create issues while computing profitability. Categorizing expenses under their correct heads helps to track expenses and measure them accurately and it also plays a significant role in tax savings.
5. Not reconciling book of accounts and bank accounts:
It is important to reconcile books of accounts on a regular basis and avoid making it an annual activity. Reconciling bank accounts and other accounts on a monthly basis ensures that errors are minimized and in case there are any issues they can be quickly identified and sorted out.
6. Incorrect classification of employees:
Employees can be of various types, companies employ permanent staff, temporary staff, contract staff, etc. Proper classification of employees helps to avoid paying excess taxes and ensures that employee-related statutory filings are done correctly.
7. Not deducting taxes:
If taxes such as GST, TDS, etc are not deducted correctly while making payments it may result in companies paying more taxes than needed, thus incurring more expenses and losses.
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8. Handling accounting and bookkeeping on your own:
Many times, small company owners would like to do accounting on their own in order to have better control of the financials, but it should be noted that accounting and bookkeeping require a cool head, dedication, and a professional expert. Therefore, it is better to employ an accountant and save your time and concentrate on core business activities while you let the experts take care of your accounts.
9. Employing cheap accountant:
A decently paid accountant should be employed by small companies to ensure that accounting and bookkeeping are done with proper knowledge. It doesn’t make sense to cut corners while employing an accountant as he deals with crucial company-related financial data.
10. Not investing in good accounting software:
There is a variety of accounting software available in the market that helps small companies to maintain accounts and records perfectly. As these accounting tools are regularly updated, it helps companies to use the best and latest accounting, law, and tax practices.
11. Giving assess of accounts to everybody:
Though small companies have few employees, companies should ensure that books of accounts are accessible only to very few and key personnel of the company. Putting the right security checks in place and regular monitoring of records ensures to keep a check on any wrong behavior and limits its effects on the company’s profit.
12. Not taking back-up of data:
It is very important to have regular data back-ups in order to avoid the potential risk of losing business-related records, especially during a break-down.
13. Not separating personal and business expenses:
It may seem easy to pay business expenses from personal funds just to save some time, but doing so creates a lot of issues in the long run. Separating personal and business expenses becomes very difficult and confusing during the finalization of accounts and audits. Thus, it is always advisable never to mix personal expenses and pay business expenses or vice versa.
14. Not managing cash-flows properly:
Proper cash-flow management ensures that you are always at the top of your income and expenses at every step. Managing cash-flows with proper controls ensures that your business operates smoothly with minimum glitches.
15. Putting off bookkeeping:
Delay in bookkeeping only means that companies are taking risk of something going wrong or missing something important. Bookkeeping has to be done regularly to ensure that no frauds or errors take place and companies can record all their transactions properly for smooth functioning.
We are here to help!
Though small companies are more prone to making mistakes due to a lack of experience and expertise, they can always take the help of professionals by outsourcing bookkeeping and accounting functions. One of the best bookkeeping service providers is Diligen. Diligen has teams of professional experts who have experience in various sectors and hence small companies can make use of their vast experience and knowledge at a reasonable cost. Diligen uses advanced accounting software that leaves no room for errors and mistakes. With Diligen as your accounting and bookkeeping partner, you can rest assured that your financial data and information are in safe hands. While Diligen takes care of your accounting needs in the best possible manner all you need to do is focus on growing your business.