With more accounting applications on the market than ever before, keeping an accurate record of where your money is going has never been easier for small businesses. Put simply, accounting software allows small businesses to track revenue, forecast sales, and manage their inventories from within a singular application.

However, if this is your first-time using accounting software, there are some common pitfalls that must be avoided to prevent any more complex issues developing further down the line. So, let us discover 3 of the most common small business accounting mistakes and explain what you can do to protect your business from these errors.

Failing to Track Business Costs Accurately

In order to be effective, your bookkeeping records must be kept accurately. Neglecting your accounting can leave your business open to losing money, and can even result in late payments for bills, both of which are problematic during tax season, and these errors can hold you back when trying to grow your business. It is not just errors made when entering transactions that need to be avoided either. For example, assuming that profit equally relates to cash flow can be a big problem, especially if any deals are delayed over a period of time. Inaccurately recording profits can make your company seem healthier than it really is, giving you a distorted picture of the reality of the condition of your company.

Therefore, it is fundamental that your accounting system logs each and every transaction so that you can accurately gauge the health of your business. Moreover, an integrated accounting system can connect to all of the financial transaction related functions that your small business engages in. Everything from paying bills to tracking bank deposits and withdrawals, to invoicing clients and administering pay checks, must be automatically tracked. By comprehensively capturing your costs, your business can grow effectively while staying profitable. You can learn more about some of the most popular integrated accounting tools out there by checking out this guide that compares wave vs quickbooks

Poor Communication

Good communication can increase profits and productivity, and therefore it is crucial that everyone working on your accounts communicates in an effective way. Your bookkeeper needs to know exactly what is going on at all levels of your small business so that you can keep a full record of transactions. Small accounting mistakes like purchasing products or services and then not reporting this when completing your accounts can cause serious problems and lead to extra work further down the line.

accounting mistakes

This is especially the case for any recurring costs that have an impact on your spending. Furthermore, mixing personal finances with your business accounts might seem like a good idea at the time, but it can be difficult to sort out the two when doing your taxes. So, while it is necessary to inform your bookkeeper about purchasing supplies, these transactions should be kept separate from other personal purchases unelated to your company. Correspondingly, keeping paper records of all of your transactions, whether records are digitized or otherwise, can make it easier to monitor your profits and outgoings. 

Underestimating the Task at Hand

Effective bookkeeping is all about recording everything to do with your business. Both small transactions and large payments from customers and clients should be properly recorded and categorized in your accounts. Taking a thorough approach to your accounting enables you to compile an accurate and reliable assessment of the health of your company so that you can determine your performance in a given period of time. Different types of assets and liabilities should be categorised correctly, and monthly checks must be made of your books and accounts to ensure that your small business is financially secure.

accounting mistakes

No one particularly enjoys piecing together all of their receipts and documents in order to file an accurate tax return but investing in accounting software encourages you to take an active approach to organizing the financial side of your small business. Navigating the complexities of tax laws can seem overwhelming for even a seasoned business professional, but taking your accounting seriously from the start, can help you to spot potential savings or other steps that your business could take to do things differently throughout the tax year.  

accounting mistakes

Ultimately, the majority of accounting mistakes are minor, insignificant, and easy to correct. Above all, by using accounting software carefully and responsibly, you can prevent any bookkeeping errors from having an impact on the financial health of your small business. In recent years, some small business owners have found that outsourcing their accounting needs has enabled them to save time, money, and resources. To learn more, take a look at this guide to outsourcing your bookkeeping.