3 Most Common Bookkeeping Mistakes New Businesses Make
According to Bloomberg, 80% of entrepreneurs who start their own business fail within the first 18 months, and poor finance management is one of the top reasons. The fact is that the financial standing of a company most commonly comes down to a single person who is required to record daily transactions and thus keep track of all financial history. For this reason, it is of utmost importance that the person in charge is a professional.
The role of a bookkeeper is an important one as they classify financial transactions and set the groundwork for the accountants to analyse the data. However, a number of businessmen choose not to hire one and believe they will be able to deal with their own financial records. Expectedly, this ultimately turns out to be a big mistake. In the text below, you will familiarise yourself with 3 most common mistakes with respect to this regard. These mistakes can have severe effect on your business.
Not separating bank accounts
Some entrepreneurs tend to run their business from their personal accounts, and this usually occurs at the early stages of a business. However, as their company grows-and if this is not changed- it becomes difficult to separate business-related activities (income or expenses) from personal ones.
Furthermore, having a separate bank account for a business makes reconciliation of books with the bank and credit card statements easier. For this reason, it is important for a bookkeeper to ensure that the cash on a company’s book is equal to the amount that is in the company’s bank account. He or she is expected to check the company’s bank statements each month, thereby identifying potential issues on time.
Not keeping up with the latest technological trends
New technologies are constantly emerging and taking away different jobs from humans, and bookkeeping is no exception. To handle bookkeeping properly, incorporation of technologies, as well as choosing a reliable software, is an absolute necessity. Lately, there has been an explosion of cloud-based apps that simplify the bookkeeping process. This is precisely why many fear that bookkeeping as a profession is about to die out, however, a sufficient amount of industry knowledge is still needed to operate these applications.
Poor cash management
Since most new businesses or startups operate with petty cash, every penny lost may end up costing the business a lot. Therefore, it is advisable to set up a system that will allow you to track the cash kept on hand for the business and what it is to be used for. The same goes for the reimbursable expenses, disbursements and even income generated.
Bookkeeping is a highly demanding job, and hiring a professional is highly advisable in order to avoid making the above-mentioned mistakes. Employing extra help might seem like an unnecessary expense, however, a bookkeeper is bound to bring your company profit in the long run.