While technology has made it easier than ever to manage your own books and stay on top of your finances, many small business owners still make the same mistakes. While you might think that these are minor issues that aren’t a big deal, they could be costing you money.
Table of Contents
6 Most Common Small Business Accounting Mistakes
1. Not Being Aware of the Financial Health of Your Business
To run a successful business, you need to be aware of your financial health. This means tracking your expenses and revenue on a regular basis, so you can identify any trends or problems early on.
You need to know the best-performing product or services, how much it costs you to produce them, and what your break-even point is. Without this information, you could be making decisions that are costing your business money.
2. Failing to Analyze Data
Many small business owners don’t take the time to analyze the data they collect. They track expenses and revenue but don’t look at them in relation to each other or how they affect their overall profitability. By taking the time to analyze your data, you can find ways to improve your business’s performance.
You will have to categorize your customers according to their age, sex, profession, and other factors in order to understand how they are contributing to the company’s revenue. You can use Quickbooks to keep track of your customer data, which will help you understand the demographics of your customers.
You can then learn how to export data from QuickBooks to Excel in order to manually check for similarities in spending habits. You can then calculate the lifetime value of each customer and their average order value in order to decide on better marketing strategies for your business. You can also use QuickBooks’s forecasting feature to predict what you could expect from a particular season or time period.
3. Forgetting to Save Financial Records
To properly manage your finances, you need to be organized. You should have a system in place for recording expenses and revenue, tracking inventory levels, and keeping track of customer orders.
If this is not done correctly or if the system isn’t working as intended, it can cause problems with tax filings and audits. To avoid these issues, you need to keep accurate financial records and make sure everyone in the company has access to them.
4. Failing to Update Income and Expenses Regularly
Failing to update your income and expenses on a regular basis can cause you to miss out on important opportunities and make it difficult to get an accurate picture of your financial health.
You should be updating your records at least once a week, if not more often. This will help you stay on top of any changes in your business or industry that could affect your income and expenses.
If you aren’t updating these numbers regularly, then it will be harder to make projections about how much money you need to spend over the next few months or years. You also won’t have an accurate picture of where your finances stand right now.
You should be keeping track of all of your business-related expenses, even if they don’t seem like they would be deductible. This includes mileage, office supplies, and meals eaten while on a business trip.
5. Failing to Specify Employees and Contractors
Failing to specify which employees and contractors are working on what projects can lead to confusion about who is responsible for what expenses and revenue. In order to avoid this, you should create a project budget for each employee or contractor. This will help you track their spending and make sure they are staying within the allotted budget.
You should also create a project budget for yourself if you are working on multiple projects at once. This will help keep track of which expenses and revenue belong to each project so that all parties involved know who needs to be paid what amount when it comes time for payment.
6. Failing to Reconcile Your Books With Bank Accounts
Failing to reconcile books with bank accounts can lead to a number of financial problems, including missed payments and overdraft fees. To avoid this, you should be reconciling your books on a regular basis. This will help you catch any discrepancies between your records and what is actually happening in your bank accounts.
You should also be reviewing your credit card statements at least once a month to make sure nothing has been charged that shouldn’t have been charged. This will help you avoid paying for things twice, which can lead to unnecessary fees and interest charges from the bank or credit card company if the discrepancy isn’t caught and corrected right away.
By taking the time to track your finances and avoid these common mistakes, you can help your business thrive. QuickBooks makes it easy to stay on top of your accounting tasks so you can focus on running your business.