Part 2 of our blog article series: "Strategies for business success"
Although most business owners recognise the importance of careful financial management, few want to spend their time dealing with "The Books". Unfortunately, not keeping a close eye on your income and expenses can be very costly for a business.
Here are 6 of the most common bookkeeping pitfalls, and some simple tips for getting back on track:
Mixing business and personal
Problem: All too often, business owners adopt a "buy now, sort later" approach to expenses, using the same bank account or credit card for personal and professional purchases. At the end of the month, they're left poring over statements, trying to sort things out. Mixing business and personal expenses costs extra hours of bookkeeping each month, and muddies your overall financial picture.
Solution: Avoid this pitfall by using a separate bank account and credit card for business spending, and being disciplined about separating expenditures.
Neglecting to track reimbursable expenses
Problem: Receipt-tracking is a necessary part of business ownership - you need to keep track of receipts to understand spending patterns and effectively manage your company's finances. But far too many business owners take a haphazard approach to collecting and organizing receipts - especially while on-the-go, where a whopping 50% of their expenses are generated.
Solution: Using an expense-tracking app can assist with recording and managing your expenses. Options like Paypr and Receipt Bank can record expenditure, as well as generate expense reports. Plus, many of these apps sync seamlessly with your business bank account and accounting software.
Not taking advantage of technology
Problem: Are you still relying on manual accounting methods? While basic spreadsheet tools can get the job done, they leave the door wide open for human error. Data entry errors and formulas that don't include relevant items are common mistakes.
Solution: Manual methods simply can't match the technological benefits offered by software like MYOB or Xero. These systems track invoicing, link with your credit card and business bank account, organize expenses, and generate insightful financial reports.
Not keeping accounts up-to-date
Problem: Many business owners cite bookkeeping as their most dreaded business responsibility and will find a host of reasons to avoid dealing with it, preferring to shove it aside until the mountain of paperwork becomes insurmountable.
Solution: Being consistent by allocating a block of time each week to deal with it means the accounts are always up-to-date, the level of paperwork is kept manageable, and errors can be identified more readily and dealt with much sooner after they occur.
Not reconciling bank accounts
Problem: One key element of bookkeeping is to reconcile the accounts with bank statements, however it is a task often neglected or overlooked to the detriment of the business.
Solution: Reconciling your bank account each month ensures the cash in your accounting system matches the cash at your bank. By checking off your bank statements against your accounting records you will be able to identify errors and take swift measures to correct them.
Lack of communication
Problem: Failing to keep your accountant up-to-date with major transactions such as property purchases or loans/asset purchases can result in your accountant spending additional time working out where the money went, or trying to track down important documentation at year end.
Solution: Consistent communication is key! And it doesn't need to be lengthy - a quick phone call or short e-mail to your accountant as the transaction occurs, or ensuring the relevant paperwork is given to your accountant at year end, can save you a lot of time, trouble and possibly money.
Keep on eye on our blog this month as we present a series of articles on
strategies for business success
You won't want to miss these!
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