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Accounting errors happen from time to time, but many common accounting mistakes can be avoided with proper planning and preparation. We all know that it usually takes more time to correct a mistake than to get it right the first time. Interestingly, it is also cheaper to identify and correct mistakes early in a project rather than waiting to correct the problem later.
If you treat your business like a long-term project, then you will want to be proactive by becoming aware of common mistakes that others are making and correct them early on, which will not only save your company time, money, and headaches but also give you a competitive advantage in the marketplace with more streamlined operations and better customer satisfaction. The following are common accounting mistakes every CPA has seen small business owners make.
Even small business owners, self-employed individuals, and freelancers should set up formal, documented, and detailed procedures for managing bookkeeping and accounting procedures as well for performing other routine tasks. A helpful step is to develop standardized forms and checklists to complete to ensure consistency and accuracy. For example, you will want to document a process for setting up new vendors.
You will need the vendor’s name, address, telephone number, and Employer Identification Number (EIN), among other documents such as insurance certificates, letters of recommendation, or signed contracts. Then you will need to enter this information into your accounting software so that you can process payments.
You will want to take the time needed to consider the information you need to gather from your vendors, develop a standardized form or checklist to make sure you get that information, and then have a written policy that your employees can follow.
Create a budget so that you have a baseline to judge your business’s operating results. Budgets are not only useful in curbing overspending but can be used to establish realistic, written financial objectives. Budgets should always be grounded in reality, but you can certainly use your budget to set reasonable financial goals, whether it be increasing revenues or reducing operating expenses.
The shoebox method of accounting is probably not a good choice for small businesses with more than just a few transactions per year. All money coming in and going out of your business must be assigned to the appropriate category.
Business owners who stay on top of their accounting records do not run into mistakes. They will know who was billed, how much, and whether or not the customer has paid.
You will also find you’re your year-end tax preparation will be much smoother than trying to reassemble the records you need to prepare your business’s tax return right before the return is due.
