Over the last decade, new accounting software and technology have made bookkeeping and accounting easier for small and medium-sized businesses. Rather than stuffing receipts and invoices in a shoe box and then trawling through them at the end of every financial year, much of the accounting process is now carried out digitally.
However, even though this software has saved countless hours of time and sleepless nights, and even though it has eliminated the vast majority of mistakes, they do still happen. And while the majority of these are easily corrected with minimal effect on the company, others can have more serious and long-lasting consequences.
This could include giving an inaccurate representation of the company’s finances, and until you are aware of this error, this could have a big impact on the day-to-day running of the business.
With this in mind, we have decided to highlight five of the most common accounting mistakes. Once you can understand how these errors can occur, you can take steps to avoid them.
Reconciling is the process of double-checking that the amount listed as your balance on the books is accurate and correct. One of the most common mistakes made by small and mid-sized businesses is just to assume that this is correct. This is the place when errors are most easily and quickly spotted, so a regular monthly check will help you to identify when mistakes happen.
Schedule your monthly check of bank and credit cards, as well as overall balances, and you will be able to find errors almost as and when they happen. Check your balance less regularly and it becomes harder to find when and where the error occurred.
A monthly reconciliation will also let you know the financial state of the business, ensure that no fraudulent activity has taken place, catch errors and keep up with customer payments.
Data entry errors
The automation of accounting and use of sophisticated software to calculate your books has almost completely removed the element of human error in terms of doing the actual arithmetic of bookkeeping. But the software is just a programme and is only as good as the information that is added.
Humans still need to input the data and it is here that a large majority of errors can take place. A missed number or incorrectly placed decimal point can easily happen and have a big impact on your finances. And because we use software, it can be easy to be complacent about the fact that it is error free.
Put in place some best practices and you can avoid errors occurring. This includes not overloading the team entering data and being realistic with workloads. You should also ensure that training is comprehensive and put in place a review system to make sure any errors that do occur are caught early.
Putting it off
This is perhaps less a specific accounting error and more one that reflects on the overall workings of your business. However, there are very specific issues with accounting that come from procrastinating or falling behind with your bookkeeping.
It can be very easy to get caught up on the day-to-day issues involved in running a business. Dealing with customer enquiries, fielding phone calls, staff meetings and everything else have a habit of getting in the way. But if you don’t make time to keep on top of your accounting then mistakes such as the above two points can happen.
Try to set aside 15 minutes each day to make sure your books are up to date, and schedule this time into the office diary so that it doesn’t get overlooked. It’s all about creating good habits. The financial state of your business should not be one of the first things to get overlooked, no matter how mundane the work might be.
Leave it all to the last minute and it will be far more stressful and the possibility of making simple mistakes goes through the roof. And if you really can’t manage to find the time to stay on top of it, then it might be a good idea to get some outside help.
Not seeking help
Carrying on from the last point directly, not seeking help when you need it or simply burying your head in the sand and not accepting the fact you could do with support is a major accounting mistake.
As a growing business, a lot of responsibility can fall on you to take care of every aspect of the business. It’s completely understandable that you want to make a success of everything you do, and that it is hard to let go sometimes. But you have to learn to accept that you can’t do everything. That means getting help with some of the more complicated tasks – and accounting falls squarely in that category.
Lack of documentation
One of the major boons of using accounting software is that all your books are done online in real time and kept up to date. They can also be linked to the government’s tax portals in new schemes that also make paying yearly tax bills much easier.
However, there can be a complacency in thinking that everything is taken care of and you don’t need to keep accurate records. This could be a mistake. In fact, without certain documentation, you could lose certain tax benefits in the future, so you need to make sure you are compliant.
To help you do this you should set up policies that produce the right documentation as and when you need it. Go paperless and ensure that everything is stored digitally and backed up where necessary. Or use expense report software options to ensure that copies of everything you do are recorded in the relevant places.
If you would like to avoid the above mistakes or talk to a professional about how to make your accounting process error free, then get in touch with a member of the Together Accounting team.