All business owners make mistakes, especially in the start-up period. Most entrepreneurs will learn from those errors and go on to build a successful company. However, there are some accounting mistakes that can be harmful to your company, even resulting in the loss of the business.
Bookkeeping and accounting are the two areas where most errors occur, possibly due to a lack of time or a lack of knowledge. Simple errors when inputting figures or miscalculations can be costly. Some mistakes can cost you a lot of money, and may even result in business failure.
Do It Yourself accounting
Many small business owners believe that investing in an accountancy outsourcing service is an extra cost that could be spent elsewhere in the business. However, unless you have the relevant and in-depth knowledge to deal with accounting, you could end up costing the business more by dealing with the books yourself. HMRC is keen to ensure that accurate and timely business records are kept, issuing penalties for those that aren’t up to the required standard.
As you are the only person looking at the company accounts and bookkeeping, any errors may go unnoticed until they reach HMRC.
Lack of reconciliation
As a business owner, you have very little spare time and reconciling your company records with your bank statements is unlikely to be done. It is crucial to make time to reconcile payments so that you can be sure there are no discrepancies between the transactions you have recorded and the actual transactions. This could cause problems with cash flow, leading to financial difficulty.
Not recording small expenses
It is a relatively common practice for business owners to pay for business expenses from their own funds, and then forget to claim back the cost. There are a couple of problems resulting from this. The first is that financial records of the company are inaccurate, while the second issue is that it makes the business seem much healthier than it is.
Pay for expenses using the company finances, and save receipts and invoices so that you can claim back the expenditure.
Confusing cash flow, revenue and profit
These are all different aspects of a company, and confusing them can result in the breakdown of your venture. Even if you have secured a contract for a large amount of money, your cash flow could be experiencing difficulty. Without available cash, you won’t be able to fulfil any contracts.
Accounting is a complex subject and is crucial for the health of a company. Give us a call if you would like to discuss any aspects of accounting.