Simple Accounting Mistakes That Could Cost Your Small Business Money

Fri, Jun 1, 2012


Although every business is worried about the bottom line, small businesses generally flirt with financial concerns far more frequently than their large competitors that have a steady income and in many cases, a larger line of credit. So whereas minor accounting errors could certainly add up over time and cause issues for a large corporation, even the tiniest error is likely to have a significant impact on the small business owner that misses it. And if you’re worried about these types of errors and omissions within your own operation (and you should be) because of the damage they can cause to your relative state of solvency, here are just a few common accounting mistakes that you could encounter while running a small business.

  1. Petty cash. This is a nice concept in theory. You might think that you need it to tip vendors, provide coffee and doughnuts for the office on occasion, or pay for cab fare to get an employee to the airport, just for example. But there are other solutions for every type of business expense, even those that are unplanned and seemingly inconsequential. And you need to track every dollar that comes in and goes out of your business. So skip the petty cash box (which can be more of a temptation to skim than anything else, considering cash is virtually untraceable). If you want to give your employees access to funding and you trust them to use it accordingly, at least use a corporate card (and have the bill sent to a P.O. Box that only you can access).
  2. Lack of accounting procedures. If you don’t have written policies in place to spell out your accounting procedures, you really can’t blame employees that fail to live up to your rules and regulations when it comes to the financial concerns of your business. No matter how lax you are about the way you run your operation, this is one area that you literally cannot afford to ignore. So take the time to create a comprehensive list of accounting procedures (or hire an accounting professional to do one for you) and make sure that all employees are aware of procedures they’re expected to follow.
  3. Data entry errors. This one is tough to combat, but with a system of checks and balances in place you can hopefully catch any human error that occurs. You may be able to do this with accounting software or you might have to peruse reports on your own to validate that the data is correct.
  4. Failure to back up files. You might not want to pay for the extra storage for an off-site server to back up files, but considering there are programs that can auto back-up files for you on a regular basis, at least you won’t have to devote any man hours to the task. And as for the cost, it will seem negligible any time you actually need the back-up, as in the case of a power outage or natural disaster, for example.
  5. Working without a budget. Small businesses deal with a wide array of financial data, from income, loans, investments, and receivables finance rates (here), to monthly bills, payroll, and one-time costs. If you don’t have a comprehensive budget in place to track every source of income and expenditure you will have no basis for planning or ensuring that your business stays on track financially.
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