Poor accounting practices can drag down even the most successful businesses out there. Nobody can know where the money flows or how harder the team is supposed to work to achieve the desired profits. Even the owners and managerial level individuals cannot make effective decisions and get the details of their financial commitments. As a result, it doesn’t take long to end up misappropriating assets, hefty penalties, loss of human capital, and brand reputation.
However, this shouldn’t be the case if the accounts of the debtors and creditors are adequately maintained and common errors are quickly spotted and fixed. In case you are new to accounting, here are some bad practices to steer away from –
#1 – Considering Cash Flows as Profits
Equating incomes to profits is a mistake that most individuals make. What they seem to miss is the bigger picture, where cash flows lead to more expenditures. So, no matter how tempted you are to write down income as profit, pause for a while and check your balance sheet status to get a clear idea.
#2 – Ignoring Small Expenses
It is possible to neglect smaller bills and payments amidst your daily work. These expenses can soon pile up to form large amounts and land you with heavy fines if ignored. Hence, have a proper system in place to keep a close track of the pending invoices.
#4 – Failing to Save Documents
Even if you use a single credit card for your business expenses, your bank statements will only show the numbers and not the purpose of spending, so it can be challenging to prove that they were actually business expenses. The only way out is to keep the receipts and make notes of your costs.
#5 – Mixing Personal and Business Funds
Now, this is a mistake that the majority of new business owners make. They mix their personal and professional finances and face great stress when filing taxes. Thus, it is best to create separate accounts for different projects to manage revenue and expenditure efficiently.
#6 – Repeating or Duplicating the Entries
When transactions are recorded twice, and similar mistakes are repeated several times a month, it can lead to a false financial statement. Over time, this can impact the status of your business growth and, ultimately, your opportunities to get more stakeholders on board.
#7 – Relying on Manual Calculations
Excel spreadsheets are great for many reasons, but certainly not for bookkeeping. The process is troublesome, and the risks of errors are very high. Implementing accounting software is instead a better bet. It can automate a lot of your tasks and eliminate errors.
#8 – Neglecting Your Bookkeeping Responsibilities
An accurate record of data provides a reliable view of your company’s financial health. But, when everyone gets too busy in the office, the bookkeeping takes a backseat. This negligence leads to severe consequences in the future. So, make sure you take time every few days to check if the financial information is fully updated.