As a business owner, it is important to be involved in all aspects of your operation. That doesn’t mean, however, that you are an expert at everything. Business owners may wear those strategic and customer-relations hats well, but many have a much more difficult time when it comes to donning that accounting chapeau.
Even worse, financial mistakes can actually stunt growth or adversely impact your bottom line, clog cash flow, attract undue attention from the IRS or damage reputations with suppliers, customers, and staff.
To avoid those scenarios, here are 10 accounting mistakes business owners commonly make and the reasons why these errors—both calculated and inadvertent—can be so detrimental.
1. Falling Behind in Entries and Reconciliation
Time is definitely not on the side of the small business owner, especially when there may be daily fires to put out. Suddenly, months have passed without making any entries in the books nor reconciling any business checking statements, credit card statements, sales tax accounts or other types of financial accounts. This means financial statements and reports are not current. Without up-to-date information, it is challenging to make sound business decisions.
For example, spending money may result in a negative balance or reduced profitability because unpaid invoices have gone unnoticed. Not entering financial data can also lead to problems with suppliers, where invoices to be paid may go unnoticed, leading to problems in getting materials or even a bad credit rating for the business.
2. Struggling to Be Accounting Software Savvy
In a rush to get the business set up, some business owners may not have spent time to properly learn the accounting software they selected. Not knowing what the accounting software is capable of doing means you could easily make a mistake or miss out on some powerful functionality. Not setting up a software system correctly could also lead to unused reporting capability and incomplete information that results in bad business decisions.
3. Not Seeing the Reports for the Tools