Accounting is one of the most important aspects of a small business, but it is also one of the most challenging for most business owners. And as one may expect, small businesses make a lot of accounting mistakes especially when they’re starting their business for the first time.
Here are four of the most common accounting mistakes small businesses make:
Assuming That Profit Equals Cash Flow
You may make N10 million Naira in profit at the end of a month for instance and still have zero Naira left in the business. This can be because that profit was given out to your customers as credit, or it was used to make some other expenses that were not properly captured or for many other reasons. But one unfortunate mistake small businesses make is assuming that profit means cash flow.
At the end of the period, the reality comes as a rude shock to many. This is why as a business owner, you must learn to understand various accounting concepts and read accounting reports to make a proper interpretation of the status of your business.
Delegating Bookkeeping to The Wrong Employee
In a bid to save cost, small business owners may opt to keep their books themselves or delegate the role to any available employee. But this can be a terrible and costly mistake for the business especially when you or your employee lack the proper expertise and knowledge of bookkeeping.
The best way to avoid making too many accounting mistakes is to hire a professional accountant. Even if they seem expensive at first, over time they would save you so much more money.
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Poor Communication with Your Bookkeeper
Unfortunately, accounting mistakes do not stop when you hire a professional accountant or bookkeeper. As a business owner, you must ensure that there is continual healthy communication between you and the accountant.
Keeping the accountant in the loop of the expenses you’ve made, withdrawals, discounts you offered etc and on time would help him/her do an even better job for your business. Poor communication is a mistake, you should avoid it.
Mixing Business with Personal Finance
For most small businesses there is no clear cut distinction between personal and business finances. They use the same bank account for the two purposes, they use their business finance to settle personal issues inappropriately etc.
This sort of mistake is dangerous for your business; it makes it difficult to get a true picture of your business finance and such murkiness can put off lenders and cost you financing when you need it.
To avoid this, start by creating a separate business account and operating your business separately from your personal finance. Create a salary for yourself and when you need to borrow from your business record it appropriately.