For many small businesses, the bookkeeping process can be one of the most time consuming activities required to keep the company going. The fact that many small firms have a limited staff also means that there is a good chance an employee with little to no accounting background is in charge of the bookkeeping. This leaves the door open for the possibility of multiple mistakes, especially if the accounting duties get pushed to the back burner. This article will discuss some of the most prevalent errors made by small businesses.
1.To start, many firms insist on doing the bookkeeping in house. Although this method saves money, it can pose problems when it comes to accuracy and timeliness. Often times for a small fee, an intern or local accounting firm can be hired to do the books on a regular basis. If the accounts are reconciled quarterly, it will be much cheaper than on a monthly basis but at the same time will make sure the books are accurate.
2.Lack of proper backup. Paper files can build up very fast, and over time it is easy for bills or statements to get lost in the mess. A common solution for this is for firms to input their financial data into a software program to eliminate the paper. Although this cuts down on the clutter, this program also needs to be backed up. Many companies feel that because their data is electronic it is safe, but in reality a second copy needs to be made in case of computer failure or hackers.
3.Improper handling of deductible expenses. There are many tax deductions that small businesses are allowed to take, especially if the business is considered personal or ran out of the owner’s home. Keeping receipts is essential to receiving tax deductions on income, and management can often times overlook this small but critical procedure.
4.Disorganization of accounts. When small businesses do their own accounting work, they tend to make far too many accounts than actually needed. Management tries to be overly organized and will make a large number of specific accounts, but if you have hundreds of them that are only used a few times, the books can become extremely cluttered which makes it hard to find a specific transaction and produce clear financial statements.
Although doing your own accounting as a small business can save you money, in the long run it is a good idea to have the job outsourced. This can prevent clutter, mistakes, and possible errors in reporting income.