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6 frightful accounting errors to beware of beyond Halloween

Posted by Tasnim Ahmed

November 1, 2021

Business accounting can be a harrowing experience without the requisite manpower or expertise. Not only does your business’s performance depend on proper accounting, but it can also determine whether the company is poised for growth or a step away from closing shop. Here are a few pointers to ensure that your business’s accounting and bookkeeping processes run like clockwork rather than wreaking havoc.

Cash flow is king

Suppose your business completes a project for $20,000, but the payment cycle is such that you won’t be paid until next month. If you categorize that $20,000 as profit in your books now, sure your balance sheet looks good, but is that money really in your account? This is the kind of assumption you as a business owner must be wary of. Cash flow is king. It doesn't matter how much money is coming in the future if you don't have enough money to get from point A to point B.

Respect bookkeeping

Overlooking the importance of bookkeeping is a mistake business owners cannot afford to make. The prospect of bookkeeping may fill you with dread, but you must take the emotion out of it and ensure that all transactions are noted. Regardless of your business’s size, proper accounting will provide the accurate picture you need to assess performance. Establish standard operating procedures and best practices, and stick with them.

Differentiate people

Lines can blur as to who is on your payroll and who is not when you team up with independent contractors and consultants to run the business. Are you hiring people directly, or getting your work done via outsourcing? The IRS and state tax agencies have strict guidelines for the tax treatment of employees and nonemployees, so not differentiating between the two can lead to tax-filing errors with potentially ominous consequences. It is better to know now than be spooked with an IRS notice later on.

Accounting in-house or outsource

Many small businesses are under the impression they should manage bookkeeping and accounting in-house to save money. But hiring professionals or even outsourcing your books to a third party is likely more cost-effective. Accounting professionals have the expertise to identify issues you have overlooked to potentially save money, and they will ensure your taxes are submitted on time. Meanwhile, your time is freed up to focus on building the business and boosting profit.

Small transactions and reconciliation

Many individuals and businesses habitually skip over small transactions, deeming them petty cash transactions unworthy of attention. Don’t walk into this trap. All transactions, whether credit or cash, small or large, must be accounted for in your books. Track all funds coming in and going out to ensure all money is accounted for. A close relative of ignoring small transactions is failing to reconcile the books with your bank accounts. If your books tell a different story than your actual cash holding, then there is a problem – a disturbing one at that.

Math and categorization errors

Simple math errors can end up grossly mispresenting your figures, which in turn render a skewed picture of your business's performance. Care must be taken to cross-reference and revise as needed when it comes to your numbers. Similarly, categorization mistakes can cause erroneous results. Avoid becoming ensnared in a cobweb of mistakes and lighten your load by engaging an accounting expert or by outsourcing accounting duties.

Authors

Tasnim Ahmed

Tasnim Ahmed is a content writer at Escalon Business Services who enjoys writing on a multitude of subjects that include finops, peopleops, risk management, entrepreneurship, VC and startup culture. Based in Delhi NCR, she previously contributed to ANI, Qatar Tribune, Marhaba, Havas Worldwide, and curated content for top-notch brands in the PR sphere. On weekends, she loves to explore the city on a motorcycle and binge watch new OTT releases with a plateful of piping hot dumplings!

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Accounting & Finance

6 frightful accounting errors to beware of beyond Halloween

Cash flow is king

Respect bookkeeping

Differentiate people

Accounting in-house or outsource

Small transactions and reconciliation

Math and categorization errors

Authors

Tasnim Ahmed

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