Minor Bookkeeping Errors With Major Impact On Small Businesses

Bookkeeping is one of the least appealing tasks for small business owners. It is often set aside to make way for other business obligations. Negligence of bookkeeping tasks has an impact on your business. Here are 5 bookkeeping errors that should be avoided whenever possible.

Mistake #1: Not recording all transactions

Errors of omission is a common mistake that is often overlooked unless its negative effects become obvious. When buying inventory or collecting payments, it is important to record transactions to prevent business activities to slip through the cracks. You will instantly throw off your books if your financial records are accurate. Aside from having difficulties measuring your profitability, filing small business taxes will also be a challenge. Make sure you note every business transaction even the ones you deem insignificant. Make it a habit to keep the receipt and organise small expenses into their proper accounts. Every business keeps a small amount of cash on hand. This is referred to as petty cash. In case you are going to buy something with petty cash, make sure that the purchase is recorded.

Mistake #2: Treating cash flow and profits equally

While cash flow and net profits have to do with expenses and income, there is still a big difference in how cash flow and net profit measure money.

Net profit enables to determine whether you are making money after paying your expenses. Your net profit is obtained when you subtract your expenses from your sales. It reflects the amount of cash your business gained during a certain period as it also measures a specific block of time.

Cash flow has to do with measuring how fast you move money. It also gives you an idea of the amount of cash coming in and going out of your business. This is shown on your cash flow statement. Your cash flow shows you the liquidity of your funds. It is important to know the difference between net profit and cash flow because when making a sale, but you do not receive the payment right away, it will only reflect the net profit you earned. Since the customer has not made a payment yet, it will result in having low available funds (cash flow).

Mistake #3: Failing to reconcile books with bank account

Financial records need to be accurate at all times. Aside from keeping records and receipts, reconciling your books with your bank account is also a must. Your accounting records and bank statement should match. However, if you fail to reconcile your books, accounting errors will go unnoticed. When you reconcile your accounts regularly, it will be easy for you to spot errors of original entry. Some bookkeeping errors are a simple fix, but since they are ignored, they will snowball into a bigger problem in the end. Keep in mind that it may take six months to notice the mistakes when filing taxes. These errors could have been prevented, have you been diligent in reconciling your accounts.

Mistake #4: Not analysing your budget

If you are working with limited funds, you need to avoid overspending and plan for income and expenses according to your business budget. Using a budget helps you keep your money on track. It also saves you from any guesswork in financial planning. Refer to past bookkeeping records so you will determine future income and expenses. You will also need to stick with your budget once you have put it in place to prevent overspending.

Mistake #5: Spending too much time on bookkeeping

Just because you are a small business owner does not mean that you should not hire a bookkeeper and resort to DIY bookkeeping. Your obligations become unpredictable when that it results in ignoring your bookkeeping tasks. Although managing your books demand time, it is important to find an effective way to handle this task so you can focus on running your business.

Bookkeeping Fraud: Is Your Business Safe?

Keeping track of the financial activity of your business is a critical role every bookkeeper should perform. You may have surely heard of horror stories about bookkeeping and accounting fraud, but due to its prevalence, it becomes a regular habit that business owners should get used to. However, just because fraud occurs regularly does not necessarily mean you should not do something to take care of your business.

Identify Signs of Fraud

Misfiled Paperwork: If you have trouble finding business records such as payroll records, deposit slips and supplier correspondence, then you need to ask your bookkeeper to produce them. While it can be easily misconstrued for sloppy filing, you still need to make sure that you are regularly keeping track of your financial transactions. Watch out for government letters about delinquent bills because in this case, your bookkeeper has a lot of explaining to do.

Inconsistent Financial Statement: When there are omissions and misstatement of financial data, it is a clear sign of fraud. While mistakes in data entry can be committed from time to time, when it is done deliberately, it becomes a fraudulent activity especially if it is done on purpose.  As a business owner, it is important you check your financial statement. With that being said, make sure you learn how to read the statement.

Incorrect Procedures: Bookkeepers need to follow correct payroll guidelines and procedures and if they are reluctant to adopt new processes it is necessary that you insist they should strictly follow new procedures. The payroll and financial records for previous years must also be investigated.

How to prevent bookkeeping fraud?

Create a reimbursement and expense policy. Instead of billing your credit cards directly to your company, bill them to your employees. You should also have an expense report for each employee and require them to turn in original receipts. Do not forget to set a daily limit so you will be able to control the amount that your employees spend. With this policy, you will be able to monitor expenses that are eligible for reimbursement.

Review financial records.  One way you can verify that sales are recorded is by keeping a financial record. Make sure the records are complete and if you find out that the customer records are incomplete, you should ask the person in charge of collecting money from customers. There should be checks and balances implemented so debt previously written off are properly recorded.

Avoid sharing passwords. It is common for most people to share passwords especially when separate user accounts are not available. For instance, if an employee wants to make changes to the account, there is no other option but to share passwords. As a result, you have lost control of permission security and unable to determine who made the changes to the account. It is important that Administrator password is controlled by senior management to prevent fraud.

Create a separate account for petty cash: You can easily monitor expenses if you have a petty cash account. This way, the expenses are properly recorded and tracked in a timely manner.