Poor accounting practices can put to waste all other efforts to grow the business. As the owner of a growing company, you may have often wondered ‘Am I making any major accounting mistakes?’
To help you, here is a list of common accounting mistakes that small businesses often make –
1. Mixing business and personal funds
Making personal purchases on your business credit card will overrun your business expenses. Also, investing personal cash in business can complicate your taxation as well as attract scrutiny of the Inland Revenue Authority of Singapore. Open a separate bank account for your business transactions. Consult a professional accountant for contributing from your personal funds to the business.
2. Using a spreadsheet
Putting information in the wrong columns or entering the wrong formula on a spreadsheet can lead to serious accounting errors. Instead, use accounting software to track financial transactions of your business.
3. Expensive accounting software
While investing in accounting software is critical, you don’t need buy an expensive enterprise-level system for your growing business. Do a cost-benefit analysis before choosing the accounting software.
4. Not hiring an accountant
If you are managing the books, you need to ask yourself if your time wouldn’t be better spent focusing on driving sales or meeting customers. Hiring an accountant will save you precious. An experienced accountant can also help in reducing costs, improving receivables, and ensuring accuracy in financial reporting.
5. Not recording business expenses
Client lunches and dinners, travel costs, and customer refunds due to defective merchandise, are business expenses that go unnoticed. It is important that you maintain periodically record expenses in your accounting software.
6. Excessive cash transactions
Failing to record cash expenses will overstate your profits and attract a higher tax. High-value cash business payments also tend to attract attention of the tax auditor. Minimise cash transactions by using business credit cards, debit cards, and cheques from your business bank account. Maintain a small petty cash account to record cash transactions.
7. Failing to reconcile receivables
Inaccuracy in tracking receivables will also lead to overpaying of taxes and high bad debts. Update your receivables on a monthly basis.
8. Not tallying payables and receivables
In a perfect world, your receivables will arrive when your payables are due. However, that rarely happens. It’s imperative that you keep a track of how much you owe people and by when. Ensure adequate cash flow to meet your liabilities.
9. Inconsistency in accounting
Following multiple accounting methods can jumble the accounting even if you have sophisticated software. Ensure that everyone in your company follows the same accounting rules.
10. Waiting until year-end to balance books
This is a huge mistake. Closing books monthly will give you an accurate understanding of how well you are performing.
Avoiding these 10 accounting blunders will keep your growing business financially sound and your life stress free!
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