These Small Business Accounting Mistakes Come at a Big Cost
There is money flowing out of your business right now as a result of simple small business accounting mistakes. Below are the top ten and how to fix them:
Not Balancing Your Bank Statements
All sorts of strange deductions can happen from your cash accounts at your bank. For example, checks and direct transfers can be cleared for the wrong amount. Checks can be cleared in your account that are not your checks. A transaction may be recorded for $63 when it is supposed to be $630 or worse, it could have been entered twice.
Solution: Balance checking accounts every month. Have it done by a different person than the one that pays the bills to add an increased level of security. Have an accountant check it quarterly.
Letting Customers Pay With 30, 45 or 60 Day Terms
Every day, you don’t collect money from customers for an outstanding bill is a day you are acting as their personal bank.
Solution: Ask to get paid at time of purchase or no later than 30 days. You will be amazed how many customers will agree to do this.
Not Following up to See if Invoices are Received and Scheduled to be Paid
Many small business owners’ mail or email invoices, but never check to see if they were received by the customer or when they are scheduled to be paid.
Solution: Establish a strict follow up schedule. Call to see if the invoice was received and when it is to be paid. If payment is not received by the promised date, follow up again.
Not Checking Invoices and Vendor Statements Against Products Received
Did the vendor bill your company only for products ordered? Did you actually get the products that you wanted and were billed for?
Solution: Match every bill against a purchase invoice. No exceptions.
Not Balancing Checks Against Invoices
Are all the invoices for real products the company legitimately ordered? Creating phony invoices for imaginary vendors is the biggest way employees steal from companies.
Solution: Carefully control the ability to create new vendors in the accounting software.
Keeping Track of Cost of Goods Sold
What was actually paid for the product? What was the gross profit on it? Too many times, the small business owner is unaware of both of these answers.
Solution: Practice a careful accounting method of LIFO or FIFO for managing inventory.
Not the Right Amount of Inventory
If there is too much inventory, the small business burns their cash flow. If there is not enough inventory, the customer fill rate is too low and the company can lose customers.
Solution: Carefully track inventory turns, fill rates, reorder points and reorder quantities.
Over paying on bank fees
Since the Great Recession, there has been an explosion of bank fees. Small business accounts have monthly maintenance, merchant accounts, wire transfer and minimum balance fees.
Solution: Negotiate with your bank for lower fees or find a community bank that may be more flexible.
Capitalizing Research and Development Instead of Expensing it this Year
Many companies depreciate capital expenses over a long period of time which increases their profit.
Solution: New permanent tax laws enable small businesses to write off up to $500K in a single year.
Not Keeping Track of all Your Business Expenses
Small businesses owners get lazy and don’t keep track of all their expenses to write off.
Solution: Implement a system like Shoeboxed to take photos of expense receipts when they happened for easier filing.
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