3 Small Business Bookkeeping Errors to Avoid

As a small business owner or entrepreneur, running a business is often a process of continual trial and error. Learning how best to do business is an ongoing process but when it comes to the company’s math, making the same mistakes over and over can cost you more than you know – and more than you can afford to lose financially.

For many small business owners, accounting is done differently to suite the needs of the business but still the same mistakes keep cropping up that can have a serious impact on your bottom line. Understanding the most common mistakes not only can help you to avoid making the errors, it can help you redirect your company’s financial focus.

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Accounting and Bookkeeping Mistakes to Watch Out For

Here are the top three mistakes most entrepreneurs and small business owners make concerning their accounting methods:

Counting sales as income before services are rendered.

Ideally, business owners should never account for a sale to be treated as revenue until the service has been rendered or the product delivered. If you account for income prior to completing the sales transaction, you are setting yourself up for failure because your income statements will show you are making a profit even when you are not. Accurate sales tracking is one of the headaches of running a business. You may actually be barely breaking even but the false information can prompt you to make unwise financial decisions. Imagine thinking you earned a profit of $35,000 in a given month and have plans to buy more equipment only to discover you are actually in the hole by as much of the sales were not completed during that month.

Being profitable – but only on paper.

For some small business owners doing it all, it may seem as if you know exactly what is going on with every aspect of your business. Failure to accurately account for your business profits as well as your business expenses can leave you often short of cash. Many times, in order to get a leg up, a business person will keep spending before they have had enough of a chance to earn back a profit. In this case, it may look as though the company is in the black but you’ll soon realize the profitability of your company is only on paper. It is essential to have a financial plan to keep track of where you are and where you need to be going. Much like a budget for a household, a business needs to have financial goals and learn how to operate below their means.

Using cash profits for big purchases.

Small businesses need to focus on their cash flow. Just because money is coming in doesn’t mean it will last for the long-haul. Unexpected expenses can arise at any time and if you sink all of your cash on hand into a large purchase, you may find yourself struggling later on. Consider your financing options such as credit cards or short term loans to get the equipment you need instead of expending all of your cash flow at once. It seems counterintuitive to promote financing a purchase when you have cash on hand to grow your business, but for these companies with the ability to secure low-cost financing, it is the best move. Having cash on hand is a precious benefit.

Make Finances a Priority

Small businesses and entrepreneurs need to put finances on the priority list if they wish to succeed. Money is essential to the continued operation of a business and a necessity to the welfare of the business owner. Without accurate accounting and good money management skills, not to mention a business budget, small business owners can find themselves closing their doors before they truly even opened. If you can’t handle it whether due to a lack of time or expertise, get small business accounting help.

A business plan that includes a complete financial section is imperative before starting your business. The plan is a guideline that can indicate early the failure or success potential of a business. It should be continually updated and catered to in order to promote business growth and profitability. If you are unable to bring your business and financial plans to fruition, your business ideas may not be a viable resource at this point. If you already started out on your business journey, it is never too late to incorporate a financial planning and goal sheet for the short and long-term.

About the Author

By , on Jun 3, 2011
Tisha Tolar
Tisha Tolar is a co-owner of Trifecta Strategies, LLC and the author of Gen X. When she is not busy being a fiction writer, she writes personal finance articles for several web sites, including Moolanomy.com.

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