Overlooked Accounting Issues Business Owners Tend To Make
Despite the advancement in technology and accounting programs, it’s hard to expect anyone running a businesss to not make a few mistakes along the way. Even those with vast and numerous accounting tools and knowledge, will still make some accounting errors. Managing a business’ finances the right way can give the owner financial flexibility, and when done wrong can be a drain on the business operationally.
Most of these accounting mistakes are due to lack of automation, the fault of simple human error, lost receipts, forgotten expenses, rushed transactions or faulty systems. In other words, since we’re not a robot, anyone could make these mistakes, and they frequently do. So, the next time you feel something just doesn’t add up while updating your numbers; it might be that you committed some of the frequently overlooked accounting errors, so read on!
1. Data Entry Errors
There’s often no particular reason why your numbers don’t add up when going through your finances. But, one of the most common mistake people make is when a number didn't get carried into the next column, when a zero was left out or when numerals were transposed. This can occur when entering numbers after a stressful day or when distractions occur.
2. Errors and Omissions
It can be so hard for a small business doing all the organization and accounting alone, to remember what needs to get recorded in the books and what doesn't. Many expenses won’t be reported or receipts are misplaced. Errors like these can cause or give an inaccurate view of how the business is doing and the level of cash flow you have or need, and these are just some of the problems it can lead to.
3. Confusing Employees with Contractors
With the advancement of technology and how the workforce is shifting to freelance work, it is more challenging for owners to designate independent contractor from regular employees. For example, you might have two people in your workplace with the same job but different employment benefits and contracts. However, this might put you at risk of possible audits, financial penalties or legal action when you cannot correctly classify a contractor or employee.
4. Not Backing Up Regularly
Forgetting to back up data can pose a serious threat to your business—but the fact still remains that, almost all of us have done that a couple of times. Many are used to the thought of, "I'll just do it the next time." This can cost your business when the unexpected things like, such as a computer crash, theft, fire or natural disaster happens. Losing that critical data means it can be impossible to prove records during an audit or do taxes at the end of the year.
5. Forgetting to Cross-Check Records with Bank Accounts
As a business owner, you should routinely check your account balances against what the bank has listed even when you have the most accurate and updated view of cash flow. This might give you the opportunity to identify any missing or hidden financial records. These mistakes and more can be greatly reduced or eliminated by avoiding short cuts and hiring a competent CPA that has your best interests in mind.