Small businesses face a mix of inherent challenges that have only become more daunting in the wake of the COVID-19 pandemic. These companies usually lack a surplus of available funds as most operate on a relatively thin margin. As such, many of the business operations must be performed by the business owners themselves or by a small number of employees.
Understandably, in thеse early stages of the business’ life where the operation is still trying to find its footing, establish a niche, and build a customer base, a single person may need to perform the duties of several different jobs. As a result, accounting is often pushed back in the priority list, without realising that doing so could lead to severe consequences down the line.
To minimise the potential risks, a better option is to look for a suitable professional accountant service such as London accountant Howlader & co. By leaving this specialised task to the experts, the business owners or their employees can focus more of their energy and efforts on making the company a success. Alternatively, make sure to pay special attention to the following common accounting mistakes that could jeopardise the stability of your business.
Article Contents
Not Differentiating Between Personal and Business Finances
While small business owners may often find themselves in the position of having to pay out of pocket for business expenses, they should still avoid treating their personal finances and those of the company as one and the same.
A crucial step when starting a business should be to open a dedicated bank account for it as soon as possible. All income and expenditures related to the business operations should be run through that bank account to have a clear record of the occurred transactions. Provable expenses can often be applied towards tax breaks and other deductions.
Not Addressing Sales Tax Properly
Without a professional accountant or bookkeeper, small businesses could experience sales tax issues. Any oversight or mistakes in the deduction of sales tax from the total sales could result in unpleasant surprises. Incorrect reporting could also lead to false total sales amount and what is due as sales taxes.
In addition, the rise in eCommerce transactions has made the process even more complicated. Hiring a professional accountant service to handle this side of the operations could prevent a lot of troubles for the small business.
Not Having Sufficient Knowledge
Assigning someone with insufficient knowledge about accounting practices and terminology could create the wrong impression of the current state of the business. For example, it is crucial to distinguish cash flow from profits.
Managing cash flow involves monitoring all the money that the company receives or spends as part of its financial and operational activities. While profits indicate the funds remaining after deducting expenses from generated revenue, it is essential to understand and optimize cash flow to ensure the smooth operation of the business.
Small businesses are often strapped for cash even though they report profits from their operations. After all, profits are registered when they occur, but the actual payment could be received at a later point in time. Meanwhile, the business could find itself unable to meet any imminent debt and loan repayments due to having low cash reserves at the moment.
Not Implementing Proper Accounting Software or Cloud Service
With the proper tools in place, many recurring accounting taсks can be automated to a significant degree. These include bookkeeping requirements such as payroll or budgeting.
An advanced accounting software suite can drastically decrease the needed time and free your schedule to run your business and address other more pressing issues. The advantages offered by cloud technologies should not be underestimated, either.
Failing To Create Regular Backups
In a highly digitised society, safeguarding your data has become more important than ever. Issues can unexpectedly arise, systems may fail, files get corrupted, or, an increasingly common occurrence, the company’s computer systems could be compromised by hackers and locked via a ransomware threat.
If the company’s accounting data suffers such an incident, it may impact the business, especially in the case of an impending audit. Businesses should be prepared for such unexpected events by regularly backing up their essential data, if possible, at several different locations.
The best methods include using a remote storage device that is kept disconnected from the company’s network except when performing the backup as well as utilising a cloud storage service.
Not Registering Small Purchases
Swamped by the everyday hustle and bustle, businesses without a proper accountant in place could fail to track all of their transactions, even though it is crucial to have a record of each one.
Trying to catch up, many small business owners who do their own accounting could skip the numerous small purchases to save time. While individually insignificant, such purchases could add up to significant sums over a more extended period of time. A good practice is to start marking each expense in the books on the same day it occurred.
