Many entrepreneurs and small business owners have assumed the responsibility of overseeing the business’s accounting and bookkeeping services. Realistically, not every company has the resources or staff available to have their own accounting departments. As a result, keeping on top of accounting and bookkeeping can often fall in the lap of a single individual or small team of people.
While accounting mistakes can happen anywhere (even at large scale companies) and among any group of people, there are a few common mistakes that can slip through the cracks when small businesses or individuals handle accounting on their own. This is because generally, there are less checks and balances in place to double check the work of one person. Not to mention, keeping track of every dollar, expense, income and revenue amount and more can be tedious work—and can get put off as a result.
If you’re wondering what the big deal is about some accounting errors, there are a number of ways it could negatively affect your business. Some examples include:
And these are just a few of many…
Now that we’ve covered the severity of making certain accounting mistakes, let’s discuss five common accounting mistakes that can occur, and how they can be avoided.
How to avoid this: No matter how big or small, keep track of your transactions both physically and digitally so you can ensure that everything adds up and you have everything you need come tax season. This way, you can prevent overpaying in the future and stay prepared for any future audits.
How to avoid this: Simple entry or omission errors can be avoided by not overloading your employees and making sure they have the adequate time and resources to handle everything. Doing so can also reduce the chances that your employees make data entry errors like duplicating entries, switching expenses and income, or others. Additionally, it may be helpful to implement internal checks that detect and course correct accounting errors.
How to avoid this: Set a date or reminder in your calendar for either once a month or bi-weekly to get you in the rhythm of reconciling your accounts and making sure it’s done in time. This will require you to cross-check your accounts against your books, which can take some time, but is definitely worth doing as it’ll make sure you stay on top of everything.
How to avoid this: Don’t be intimidated by the myriad of accounting software options available. Instead, do your research and consult external accounting professionals for their opinion on which accounting softwares will be the best fit for the goals you’re looking to achieve. Then, once you decide on an accounting software, make sure the onboarding process is streamlined and seamless for whoever is overseeing your accounting functions. This way, you can reduce the potential for errors made.
Fraud is the last thing any business wants, but can happen nonetheless. However, it becomes more difficult to commit fraud if there are multiple people responsible for overseeing the financial activity of the business.
How to avoid this: Depending on the resources available, it may be a worthwhile idea to set up a financial committee that is responsible for overseeing the revenue, income and expenses, taking care of the assets and equity, and tracking cash flow to the tee. This is a good alternative for small businesses that don’t have the manpower or financial means to hire an entire accounting team or outsource accounting functions. With this in place, you can rest easier knowing you have guardrails against fraud and that you are best prepared to catch small mistakes.
Unfortunately, accounting mistakes are not limited to the five we just discussed—there are many more that can be made. Because of this, it’s imperative that business leaders take every precaution necessary to protect against and make up for human error, mal intent, and missing financial information.
To help make this all a whole lot easier, you can always outsource your accounting functions to a trained team of CPAs who have the expert insight to man your financial functions. If you’re ready to outsource your accounting to, we’re here and ready to talk! Let’s get a conversation started today about how to get your accounting done the right way.