Common Small Business Bookkeeping Mistakes That Business Owners Make
Every big business starts out small. Its growth and expansion depends on the management techniques applied by its owner. Small business bookkeeping is an area that can easily interfere with the growth of a business if it is overlooked. Most small-scale entrepreneurs record daily accounts of their businesses casually. They simply sketch separate tables for sales, purchases, receipts and payments entries. Sometimes they forget some petty cash transactions, a trend that can gradually limit the growth potential of their organizations.
Since Small business bookkeeping is a section of a company that deals with the entry and exit of money, entrepreneurs need to learn their mistakes and correct them. The first mistake that most of them make is using an incorrect data entry method. As mentioned above, incoming business proprietors use the cash accounting method. This technique is the simplest of all since it involves cash entries only. It is all about recording transactions that are processed with real cash instead of checks or credit cards.
As customers increase, transactions involving all methods of payments start to enter making small business bookkeeping more complicated. Several entrepreneurs fail at this point because they go on using their favorite cash accounting instead of introducing the more complex accrual accounting technique. This accounting technique makes it easy for a bookkeeper to match expenses and revenues accurately. As mentioned above, numerous novice proprietors do not account for petty cash transactions the same way they handle large sums of cash.
If employees discover that petty cash transactions are not logged properly they are likely to spend it on personal matters. A sound small business bookkeeping system should be designed in a way that allows each employee to submit a receipt every time he or she removes money from the petty cash reserve. The cash in the reserve should not be added until the current amount is exhausted. This will enable a clerk to compare the total sum of money on all receipts with the original sum of petty cash in the reserve. Another common mistake that most small-sized business owners make is failing to separate business and personal monies.
It is important to have separate accounts for personal savings and business profits and working capital. Furthermore, if an entrepreneur deducts money from the business capital account he or she should consider it a loan that has to be refunded. The problem arises when the deducted money is not refunded and accounted for. This habit is likely to ruin a business in the long-term. A good small business bookkeeping service should provide advice on personal and business finances. A business that lacks proper implementation of checks and balances in its bookkeeping and accounting system can slowly collapse.
This is because it can leave some loopholes through which money can disappear without a trace. Strong financial controls should be implemented to ensure that every employee controls a small portion of the entire accounting system. In this regard, it makes sense to outsource Small Business Bookkeeping work to an external accounting firm because it has many certified accountants, auditors and bookkeepers. The main reason why outsourced accounting firms excel is because they are versatile enough to do custom data entry as instructed by their clients.
Amitaabh Saboo - About Author:
Accurate Bookkeeping Services improves the ability of a firm to focus on business growth while simultaneously curtailing risks and costs. There are many firms offering bookkeeping services that work for small and medium businesses worldwide.
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