How Many Of These Accounting Mistakes Are You Guilty Of?

Regardless of your industry or business experience, there are certain assumptions and bad habits that can lead to the decline of even the most profitable company. Some of these mistakes are simple oversights, and some are more deeply ingrained habits, but each one must be taken seriously for any business to obtain prolonged financial growth.

Overconfidence in Accounting Software

It is tempting to think that having the right accounting software will be the financial safety net your business needs, but this is shaky confidence. There is no question that online bookkeeping has become much more accessible in the past 10 years. Between the seamless integration with online banking, improved reporting, and ease of access, there is the illusion of having a financial safeguard. Unfortunately, there is an enormous difference between diligent record keeping and true business accounting. 

Investing in the best accounting software still requires a working knowledge of bookkeeping best practices, especially if you hope to stay within the bounds of regulatory compliance. The best software can never replace proven expertise.

Too Busy To Update Your Books

Without a commitment to regular updates and attention to your books, you don’t have the tools to know how your business is performing. For instance, if you own a medical practice, you should know the costs related to your staffing, medical supplies, and malpractice insurance. You should also know if those costs are in line with other medical providers in your market. If you are in retail, you should be tracking your inventory levels and know how to balance your cash flow. 

Essentially, when you allow the tyranny of the urgent to overtake the time needed for updating your books, you are driving blind. Your business may be humming along, but you don’t have the tools you need to make critical and strategic decisions.

Uncertainty About Actual Financial Health

This sort of uncertainty is usually a symptom of other issues, but it is often the soil in which more significant problems multiply. Keep in mind that, having money in the bank isn’t automatically sign of financial strength. Often, small business owners neglect to weigh the impact of various liabilities like loans and future payments. When you pencil out what you owe, it may be that you don’t have the funds to cover future expenses. 

This sort of uncertainty can become a plague within your business as you second guess important decisions and become hesitant to make any significant changes.

Leaping Before Looking

If business paralysis is one end of the spectrum, then reactionary and reckless business decisions are at the other end. The root issue here is failing to analyze your finances before making any changes. The foundation of sound decision making is to observe, analyze, and then advise. Regardless of the reports you use, looking at actual numbers is only the first step. Are you clear on what those numbers mean? More importantly, do you have a firm grasp on what you can do to improve them?

Without this sort of analytical preparation, any decisions related to your business can become reactionary and misguided. Far too many business owners lead their company into unnecessary loss, which could easily be avoided with proper evaluation.

Trusting The Wrong Kind Of Help

Undoubtedly, this error can be the most discouraging. After all, you have tried to avoid the myriad of pitfalls that come from ignoring or mishandling your books by reaching out for help, only to discover the help is woefully underqualified. 

When looking for accounting assistance, you need someone who addresses your needs with qualified experience. Turning over the responsibility of managing your books to an internal administrator or even an outside consultant is no guarantee that your bookkeeping will be in good hands.

Putting It All Together

If you look at each of these pitfalls and flip them on their head, you have a solid strategy to correctly handle your business accounting:

1. Know the limitations of even the best accounting software
2. Carve out the appropriate time to review your business finances
3. Refuse to live with accounting uncertainty
4. Support every business decision with analyzed data
5. Partner with a bookkeeper that has proven to be trustworthy and brings industry expertise