With a long list of time-pressing tasks, it’s very easy for startups and small and medium-sized businesses (SMBs) to overlook the importance of accounting and bookkeeping. Accounting is vital to understand the company’s cash flow status. Plus, thorough accounting is required for government compliance regulations. Here are seven common accountings mistakes that startups and SMBs can easily prevent by realizing.
- Making Data Entry Errors
- Throwing Away Receipts
- Failing to Reconcile the Book
- Working Without a Budget
- Doing Too Much Yourself
- Lack of Communication
- Not Using Accounting Software or Cloud Technology
- The Ultimate Solution
1. Making Data Entry Errors
It’s normal for a person to make data entry errors like omitting entry, duplicating an entry, inputting in the wrong line, adding extra digit, or missing decimal from time to time. There are two simple ways to prevent data entry errors.
Review and Audit Process
A periodic review and audit process will help quickly detect and correct errors before it turns into a bigger problem. But remember, as review and audit are time-consuming tasks, it will become a bottleneck process for the business when done too frequently.
Avoid Work Overload
Ensure that everyone in the company doesn’t constantly feel overwhelmed by their work. When an individual is burned out, it reduces productivity and increases the chance of costly errors for the business.
2. Throwing Away Receipts
It is vital to keep all receipts and invoices until taxes and audits are completed. The government recommends that businesses store financial documents on file for six years.
Receipts are an important piece of document required for cross-checking to resolve data entry errors. Thinking that bank statements are enough is a misjudgment as bank statements don’t include the complete transaction details. It is a good practice to build a centralized system for the entire business to manage receipts in a standardized way to avoid future hassle.
3. Failing to Reconcile the Book
Not tracking business transactions accurately and letting small expenses or cash expenses slip is a bad habit for any business. Falling to reconcile and keep an accurate book will cause the companies to overstate income and as the company grows becomes a severe issue that could lead to failure of the business due to poor cash flow.
Reconciling will create an understanding of actual cash flow and protect businesses by lowering the risk of internal fraud.
4. Working Without a Budget
Start building a habit of creating budgets for all projects. Without an initial budget in place, there is no baseline to judge the success or failure of any project. Besides, with budgets in place, it helps to stop overspending on a project.
Most startups and SMBs have a limited budget. Therefore, with budgets in place, it can act as the first checkpoint to evaluate if the project is realistically doable and if there will be any return at the end of the project. Return on investment (ROI) is a key performance indicator (KPI) for businesses. Avoid spending on a project that could negatively impact the business’s cash flow.
5. Doing Too Much Yourself
Outsourcing and hiring an accountant and bookkeeper is beneficial for businesses. Ultimately allows core members of the company to focus on revenue-generating activities. Plus, shortening the time spent on accounting, bookkeeping, and reconciliation reduces the chance of mistakes. Moreover, having a specialist can help with tax deductions and taking advantage of any missed cost-saving opportunities.
6. Lack of Communication
All financial activities must be clearly communicated to be recorded. With proper communications, accounting errors can be minimized, bridging the gap across the company. As high volumes of transactions happen daily, communication can streamline the process for monitoring these transactions, minimizing bottlenecks to validate legitimate transactions to prevent fraud. It also helps reduce the number of duplicated payments.
7. Not Using Accounting Software or Cloud Technology
Businesses should start utilizing and modernizing financial operations by leveraging accounting and cloud technology that can be the solutions to eliminate painful manual processes.
The Ultimate Solution
Adopting , (AP) and (AR) solution provides businesses with two options. If the company wishes to proceed without hiring an accountant and bookkeeper, Plooto can help remove the complexity and streamlines payments and receivables. Moreover, Plooto is simple and easy, that no financial training is required.
Even for businesses that hire an accountant and bookkeeper with Plooto, the company can still maintain complete financial control with robust payment approval workflow, having in-house approval for payments initiated by the accountant or bookkeeper keeping in-house effort to minimal. Plus, a cloud-based system allows the business to easily access and review all transactions at any time without reaching out to the accountant or bookkeeper having the entire audit trail available.