With widely available accounting tools, it is now easier than ever to keep an accurate record of where your company’s money is going. However, there are still possibilities of committing errors and accounting mistakes.
While some accounting mistakes are insignificant and easy to correct, there are more serious mistakes that may have detrimental effects on the financial health of your business. The following are some of the most common accounting errors small businesses make:
Assuming That Profits Is The Same As Cash Flow
In a $50,000 deal that will take your company three months to fulfill, it may be easy to assume a $30,000 profit on the deal if the cost of funding the project is $20,000 but this is a big mistake if you have not yet delivered anything.
Possible issues may arise. Instead of taking three months, for instance, it may take you two more months doing the project, which increases the costs. It may be tempting to write down each closed deal as an income but doing so may give you a distorted image of the actual condition of your company.
Failing To Distinguish Employees From Contractors
There is a big difference between an employee and a contractor, which you need to account for. You should know the difference and the accounting consequences of this difference to avoid recording accounts inaccurately.
Not Taking Bookkeeping Seriously
Regardless of the size of your company, taking accounting seriously can give you a more accurate and more reliable picture of your company’s financial health, which can help determine how well or poorly your business performed in a given period. Make sure that every transaction is recorded and categorized in your accounts.
Managing All Your Accounting In-House
You may think it a good idea to handle all accounting on your own to lower operational costs. While doing the accounting yourself may seem a good idea to save money, it may actually result in your business losing money.
Accounting experts are familiar with tax deductions that you are not aware of and can discover errors that are difficult to see on your own. As a result, managing your accounting in-house may actually cause you to miss a chance to save money.
To avoid these costly accounting mistakes, you may want to seek help from accounting experts. ORT Consulting can handle accounting and tax issues for small businesses. Contact us now to learn more about our services.