Many business owners show eagerness to expand and prosper yet fail to understand the basic needs. One of these basic needs is bookkeeping. It is an essential part of any business but remains mostly neglected.
Bookkeeping in business is a systematic process of recording and organizing all the financial transactions in an organization. Maintaining a reliable accounting process is a critical aspect of business success, and bookkeeping happens daily. It ensures that the records present have updated information and accurate according to business needs. A business must record every transaction from a sale to an expense. The bookkeeping process has a set of structures that help to ensure timely recording of the relevant transaction.
Tasks of Bookkeeping
In simple terms, bookkeeping is an organized manner of recording the financial side of a business. Not only is it essential for business, but it is also useful for non-profit organizations or individuals. The person responsible for bookkeeping has to perform specific tasks that include but not limited to these points:
- Recording expenses and payments to suppliers
- Payment of loans
- Asset depreciation monitoring
- Invoice payments to customers
- Generation of financial reporting
Mistakes in Bookkeeping
As mentioned, bookkeeping is a systematic process that needs specific expertise and specialized training to handle. When it comes to business growth and development, accurate and timely bookkeeping pays off very well. However, while its significance and importance are known, businesses still make costly mistakes in this process. Let us consider some of these bookkeeping mistakes that cost companies a fortune in the long or short term.
Not hiring an experienced professional
While many company owners or managers try to maintain bookkeeping independently, hiring a professional pays off very well. Their experience quickly finds solutions around accounts-related problems. Even if a business owner has experience in bookkeeping, allotting time for the activity is difficult for daily business needs. Hiring a professional saves time and trouble in key bookkeeping areas. These include expense tracking, timely payments, book account balancing, and others. A professional accountant can keep all the records aligned and keep track of all the financial transactions. After completing an accounting online degree, individuals start their training as licensed bookkeepers and gain experience through various ventures. Once they have enough knowledge about their task, they provide businesses an organized way of handling all the key accounts and keep financial transactions smooth.
Whether you are a small business owner or self-employed, you have to perform various financial tasks. You have to work hard to generate a profitable money stream, and the last thing you want is to give a massive chunk in taxes and payment to bookkeepers. In such situations, outsourcing bookkeeping activities seems like a viable option.
However, it may sound cost-effective; outsourcing your bookkeeping is not the right idea. It is because of the sensitive nature of financial data that anybody with enough expertise can easily exploit. You cannot entrust your business’s financial information to anyone outside of your company, so outsourcing is out of the question! Your target is to grow your business. If anybody misuses the information of your finances, you’ll miss out on your objectives. Outsourcing bookkeeping is one of the most costly mistakes that can easily hurt your business and take you back several years. On the other hand, hiring a professional accountant saves costs by having an organized record of every expenditure and earning while simultaneously keep the information safe within the company.
Lack of a prepared business plan
The beginning of a business plan has to remain active to reach the end. Proper analysis of the market is only possible if the business plan outlines the right strategy. It gives a business an idea about reading the trends and working accordingly.
An adequately devised business plan is also necessary to run the accounts and achieve proper calculations. Lack of an appropriate method of business means there is a failure in bookkeeping. Planning plays a vital role in accounts and business finances as more than 71% of small businesses and startups fail due to improper financial planning. Therefore, for better bookkeeping results and adequate finances, having a well-prepared plan is crucial.
Not following late payments
Staying on top of your payment and accounts receivables is not an easy task, especially if your business model relies on money that is not in your account yet. For any business, cash flow is an important aspect to maintain daily activities and smoother operations. Before providing a service or product to anyone, ensure that you have set an exact payment schedule. Your bookkeeping becomes more comfortable if you have specific dates of payment available. Keeping your payments in line with the books helps streamline your invoices, so you get paid on a timely basis.
Not keeping relevant receipts
For a business, holding on to receipts is a crucial factor. Misplacing them may cause disruptions in tax returns or claim on any expense. While it may seem silly to keep receipts of every expenditure, it comes in handy if any claim or investigation opens. You need to provide all documents as proof of correct expense write-offs, and bookkeeping requires storing all relevant details and receipts.
Carelessness and a lazy attitude while handling bookkeeping is the most costly mistake anyone can make. If you remain careless in bookkeeping, it will impact business decision-making, yearly reporting, and forecasts. Some of these mistakes might hamper activities like hiring new staff, investing in new equipment, or seeking loans. A mistake can happen if you neglect all the aspects of bookkeeping or enter expenses in the wrong category. Re-organizing all these mistakes may take more time and effort that is not suitable for business in any sense.
Tips to prevent bookkeeping mistakes
- Combine personal and business expenses to handle all income and expenditure accordingly.
- Use automated bookkeeping applications or software for an accurate and more effective result.
- Regularly review and audit your accounts to ensure that your records have updated information.
Bookkeeping is an activity that saves much money and time for business in keeping relevant records. As mentioned above, the points are some of the most costly bookkeeping mistakes that companies usually make to save a pretty penny. Understand that these mistakes may seem little but have a lasting impact on business profitability in the long run. The best way to avoid these mistakes is to hire a professional accountant to handle the bookkeeping activity for better results.