Contributed by Independent Bank
Four things that can cost your small business big.
Accurate bookkeeping is crucial to running a business of any scale, but it’s especially vital to small businesses where every penny counts. Despite how costly it can be, though, many business owners still make grievous mistakes when handling their accounting. These four issues are much more common than you would think, and can cost your business big if not avoided.
Falling Behind
This is one of the easiest bookkeeping mistakes to make, even if you’re trying to be diligent. It’s tempting to just shove all those receipts and invoices into a drawer (or a hard drive), but doing this will put you at serious risk of misplacing something or becoming overwhelmed and making errors when you finally do have time to catch up with your workload.
Missing a single expense receipt or paid invoice can significantly throw off your accounts, which can cause you to owe more (or less, which can be an even worse problem if your business happens to be audited) at tax time than you otherwise might. Try to keep the records up to date as the money actually changes hands, and you’ll have a much better chance of avoiding errors.
Not Accounting For Contingencies
Part of the reason why bookkeeping is important is because it lets you know how much money you have available for business purposes. That’s great, but just looking at what amounts of money have gone in and out of your accounts (which is all bookkeeping tells you, on the surface) doesn’t give you the whole story. It may seem like you’re free to spend whatever’s left at the end of that balance sheet, but a smart businessperson is a little more careful than that.
Don’t just think about the expenses that have already happened—try to give yourself a fair amount of financial breathing room for potential emergencies that could come up down the line. If you don’t, you may end up financially crunched when you have to do things like replace equipment or pay some employees for overtime hours. You also just might have a slow month coming up where you’ll have much less income than usual, so you’ll need extra cash to cover your expenses. Things like this can’t be easily accounted for in bookkeeping, but it’s up to you to know better than to assume that means they aren’t important.
Recording, But Not Analyzing
Storing accurate records is great, but if that’s all you’re doing with your bookkeeping data, you’re missing out on all that data’s predictive potential. Think about it—those records hold the financial history of your business. If you know where to look, this information can tell you what you’re doing well or doing poorly, as well as how to maximize profits.
Try to use your bookkeeping records to get a statistical picture of where your money goes each month. Which of your offerings are selling well, and which aren’t? Have you seen an uptick in sales since introducing that new promotional technique? Are you really spending hundreds every month on printer ink and breakroom coffee? These questions can be answered by examining your books, and once you have those answers, you can optimize the way you run your business based on what they reveal.
Treating It As A Menial Task
Possibly the worst bookkeeping mistake you can make is just not taking the job seriously. Aside from delivering your actual product or service, your bookkeeping is probably the most important part of running your business. It’s not something to be idly picked at whenever you happen to have the time.