MOST COMMON ACCOUNTING MISTAKES ASSOCIA TION INSIDER

Made by Small Businesses and How To Avoid Them

Running a small business means you’re a jack of all trades. There is no marketing department or financial team; it’s all on you. This is a challenge.

SPOTLIGHT INDEX

1. Not Taking Accounting and Financial Record Keeping Seriously Enough

You’re trying to attract new customers but also trying to do all the administration for your business. Most small business owners do their own accounting. As a result, many make mistakes that can, in the long run, exact a high cost on their business. It can often be impossible to navigate your way through without missing something if you’re not a qualified accounting professional.

In this article, we set out why paying for a qualified financial professional may be the best thing you can do for your business.

Let’s start with the most common mistakes small businesses make when doing their own accounting.

THE FIVE MOST COMMON ACCOUNTING MISTAKES MADE BY SMALL BUSINESSES

Below are five of the most common accounting mistakes made by small businesses.

Doing your accounts and keeping track of your expenditure should not be an afterthought. Cashflow is the lifeblood of any business. The smaller your operation, the more important it is to keep track of your spending and expenses. Keeping track of your financials gives you a clear picture of your business and helps you plan for the future.

2. Mistaking Profit For Cashflow

Another common (and often fatal!) mistake for a business is assuming that profit and cash flow are the same.

Let’s talk through an example to help illustrate this point.

Imagine you’ve closed a deal with a new client worth $40,000. It will take you six months to fulfill this deal, and you’ll need to spend $10,000 to meet the specifics of the contract.

Great, you think, “I now have $30,000 to spend on that new equipment I need.” But before you rush off to spend the cash, stop and consider the following:

4 What happens if there is a delay and the contract takes longer than six months to complete?

4 What happens if the cost of the materials you need rises or you lose a staff member crucial to the contract?

Suddenly that $30,000 spending spree you were planning is not so attractive.

3. Not Separating Personal Accounts From Business Accounts

Using the same bank accounts for your personal life and business can be tempting when you’re a small operation. Let’s look at another example to illustrate this point.

You stop by your local mall to pick up stationary for your business, and while you’re there, you buy some personal items. Everything you buy ends up on the same receipt.

This makes keeping track of the business’s financial health a challenge. When the time comes to do your tax returns, it can mean you miss deductions or other expenditures that affect your bottom line. Or you end up attributing items to your business that were for your personal use.

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