New technology and accounting software has made bookkeeping and accounting easier for small to mid-sized businesses, but it hasn’t entirely eliminated costly accounting mistakes. Some mistakes may have minimal effect to a company’s financials and can be corrected. While other mistakes are more serious and could have a significant impact by misrepresenting a company’s true financial health. In this blog, we’ll review five of the most common accounting errors and how to avoid them.
1. Timely Reconciliations
Reconciling balance sheet accounts, such as bank and credit card accounts, at least monthly is vital to a small business’ success. Reconciling is the process of checking that an account balance as listed on your books is accurate and correct. This process helps identify problems before they get out of hand. A few benefits of reconciling are:
- Knowing how much cash or credit you really have available,
- Ensuring there was no fraudulent activity,
- Catching bank errors, and
- Knowing if customer payments have bounced or failed to post.
Most accounting software have a reconciliation feature available in the system to make the process easy and efficient.
2. Data Entry Errors
Human error when entering data is one of the most common causes of unnecessary money loss. While you cannot prevent all data entry errors, you can put procedures in place to ensure entries are identified and corrected timely. A few best practices to help eliminate data entry errors include:
- Avoid overloading the team. There is a limit of data entry work a person can do in a day. Be realistic with your team’s goals and objectives.
- Review the work. Whether your company implements quality checks or frequent reconciliations, ensure there is another set of eyes on the books, including your own.
As the owner or manager of a business, learn how to get into your accounting system to review the work. Ask your team questions; this encourages them to double check their own work when they know someone is going to review it.
- Train well and train often. We often see small companies who have one person doing the work of ten, with little to no training in those roles. When it comes to bookkeeping and accounting, it pays to have someone knowledgeable and well trained. Invest in your company’s financial wellbeing by training your team on your company’s accounting procedures and expectations.
3. Lack Of Documentation Procedures
Your company could lose valuable tax deductions if you fail to document certain business expenses. The IRS does not consider expense items valid unless accompanied by supporting documentation. A few helpful practices to ensure you are compliant:
- Instill policies. Set a company policy that reimbursements and expense reports are not paid unless receipts are attached.
- Go paperless. Use cloud based storage such as SharePoint or OneDrive to reduce lost or missing paper documents.
- Use software. Expense report software such as Expensify or Zoho Expense are available as an app for smartphones to help make business expense reporting a breeze.
- Don’t pay vendors unless they submit a bill. Vendors want to get paid. They will submit a bill to make this happen. Don’t be lenient.
It’s easy to put bookkeeping off when business picks up or is pulling you several other directions, but it can also be detrimental to the success of your business. We often get calls from business owners, usually around year-end, asking us if we can do their bookkeeping. Once we arrive at their office there’s generally a shoebox, or much larger box, full of receipts from an entire year that they never got around to posting. While we love to help business owners, it can come at an expense to them instead of setting up reoccurring practices to stay on top of their bookkeeping. A few helpful nuggets for all those procrastinators out there (no judgements!) are:
- Schedule time on your calendar to work on your books. If you don’t schedule it, time will slip away from you.
- Do a little bit at a time. If you don’t prefer to spend an entire day on bookkeeping, break down the time to an hour or two a day. It relieves the pressure to get it all done at once.
- Hire help. Owning a business is not a one man show (unless your business is actually a One-Man Show). Know your limits. If bookkeeping is over your head, ask for help. Which leads us to #5…
5. Not Seeking Help When Needed
You are managing a growing business. You cannot do it all yourself. Ask for help where you know you need it. Maybe you love doing the bookkeeping for your business, but need help with answering the phones or processing payroll. Know your strengths and hire out for your weaknesses. If you put off seeking help when you need it, everything else will fall off kilter - and cost you an unnecessary expense to hire to clean up the mess!
Accounting errors are bound to happen, but a business’ practices and procedures to identify and prevent those errors will ensure a company’s financial health for many years to come.