Top 10 Accounting Mistakes in Small to Medium Sized Businesses
By Lance O'Grady
Not knowing your true cash balance: Due to things like automatic payments and bank charges, money that appears in your cash drawer and your checking account may already be spent.
Extending credit without checking credit: Until you collect some basic credit information about a customer, don't make on-account sales. A sale isn't much good if your company never gets paid.
Mistaking profits for cash: When you have a lot of credit sales, your company can post big profits without seeing any cash.
Paying bills too soon: If your vendors give you thirty days to pay them, take it. Unless you get a discount for paying early, paying your bills only when they're due improves your company's cash flow.
Avoiding bookkeeping tasks: Not recording and posting transactions regularly leaves you with a mountain of bookkeeping to deal with instead of a molehill. Plus, the time lag can act like a vacuum, where transactions disappear and never are recorded.
Not hiring a payroll service: The minor cost of hiring out this task provides a huge benefit for your company. It can free up your time and help avoid the financial penalties that go along with late and incorrect filings.
Paying accidental dividends: Every time a corporation owner takes money out of his business, it counts as a dividend. That can lead to a bigger personal income-tax bill.
Not keeping personal finances separate from business: Mixing up business and personal money can cause bookkeeping and legal problems.
Setting prices too low: Know your costs before you set product or service prices, or you run the risk of losing money on every sale. A simple break-even analysis can help you set prices at a profitable level.
Turning over all the financial stuff to someone else: Without an intimate knowledge of your company's finances, you can't make successful decisions. Even if you don't want to deal with the daily bookkeeping tasks, look at your financial statements every month to help you plan for profits and prevent potential problems.Top 10 Accounting mistakes in small to medium sized businesses