The financial position of your business is measured through your bookkeeping records. With good quality, accurate and timely accounts you really are in a position to make balanced business decisions. However, despite the importance and logic of this, many business owners fall into the same traps time and time again. You will see below a list of the 10 most common mistakes that small and medium sized businesses make and hopefully this will help you avoid them.
1. Forgetting Reimbursable Expenses
Small business owners often pay for expenses with their own personal credit card or cash. Quite often, they forget to submit these receipts to the business for reimbursement. These small amounts add up over the year and will reduce your profit (if you’re lucky enough to make one), hence reducing your tax bill.
2. Not using Accounting Software
In this day and age, there is simply no good reason for any business not to be using Accounting Software. The benefits hugely outweigh the cost. These benefits include ease of reconciliation of bank statements, elimination of many mistakes that would occur in a manual system and the production of a whole range of reports at the push of a button. Get advice from a professional as to what package would suit your business and they can also provide training in this area.
3. Not properly classifying employees
Revenue has become extremely strict about the classification of who is an employee and who is a contractor. You need to be aware of the criteria to fulfill for calling someone an independent contractor. It can be a very expensive mistake if the Revenue decide at an audit that a contractor should have been an employee and decide to retrospectively apply this.
4. Poor Structure of Accounts
A well thought out Chart of Accounts will provide the basis for informative and accurate Financial Statements. The structure also needs to be specific for your industry. Classifying your expenses correctly will, for example, allow you to determine between such costs as “variable” and “fixed” which you must know if trying to reduce your costs. A non-accounting person will struggle with unfamiliar terms like “equity” and “drawings” and invariably will make mistakes in these areas.
5. No backup taken
This is one mistake that should not happen but amazingly does all the time! Apart from the obvious inconvenience if you lose your accounting history, you must still be able to produce a paper trail or documentation verification for an Auditor.
6. Failure to Reconcile the Bank Account
Ideally, you should have a separate business account to simplify reconciling your accounts. It is essential to reconcile your bank accounts each month to eliminate errors and the consequence of such errors. This is one area which non-accounting people really struggle with and one of the major reasons for hiring an experienced bookkeeper.
7. Failure to keep track of Cash
This is a particular failing of cash businesses ie the retail trade. It is essential to record every payment made during the trading day out of the till. These can vary from cash payments to suppliers to paying the window cleaner! Reconcile your till at the end of each day and record any shortages. Determine how these shortages happened whilst it is still fresh in the mind of staff. Pass all details of cash payments to your bookkeeper with receipts.
8. Lack of communication
Having someone handling the bookkeeping is only effective if they are kept up to date on all financial transactions. A frequent mistake is not informing your Payroll Provider of changes in salaries. This irritates employees and can cause later difficulties with Revenue.
9. Dealing with the Revenue
An amazing amount of owners become ostrich-like when it comes to dealing with the Revenue. Open those brown envelopes as soon as they hit your desk and deal with correspondence from the Revenue promptly. Nothing spurs them on more than being ignored!
10. Doing it all yourself
No matter how much they hate it, many small business owners insist upon handling the books themselves or worse, letting an inexperienced family member do it. Most owners do not put a realistic value on their time. Does it make sense to spend your time doing tasks that can be outsourced at a lower cost to someone who is actually trained in the job and can do it in half the time? Hiring someone competent will also result in lower Accountant’s fees at year end as there should be minimal adjustments to make.