Being your own boss has its advantages but it also comes with responsibilities that you may dislike dealing with. Like most entrepreneurs, you may be guilty of making several book keeping mistakes that can affect your business’ profitability. As a small business owner, you may think you are safe from costly financial mistakes, but that is simply not true. In fact, the smaller your business is, the more important your finances are to the success of your business and possibly the wealth and health of your family. Therefore a small error stunt can resort in financial disaster.
Now, lets talk about those mistakes entrepreneurs make in managing their finances.
INTERMINGLING BUSINESS AND PERSONAL FUNDSOne of the most common mistakes among entrepreneurs is mixing personal and business funds together. Stories like I paid for the trip with my personal credit card” shouldn’t happen. There are several reasons why buying personal items on business cards or business items on personal cards is a wrong move to make :
Mixed expenses and write-offs
Breaking the corporate veil
Extra work to make your journal-entries
The solution: make sure you have separate bank account and separate credit card for business and personal use. Better still, transfer the money into the business bank account and assume all the actual expenses from the business account. It is all then recorded by the business account.
2. LOOSING TRACK OF TRANSACTIONS.Loosing track of a single transaction can result to a huge financial loss in your business. Sometimes when you ask a client who a specific deposit was made for, they cant remember so they guess. Sometimes they forget to create an invoice , or they give the wrong client credit.
The solution : Proper book keeping can prevent these transactions from slipping through the cracks. If you dint have a good bookkeeping system in place, get one! Have someone set up the entire system (chart of accounts customized for your business) and give you a weekly check list of items to do each week. This way you can ensure accuracy from the start and can learn along the way because you have someone to oversee and let you in on the mistakes.
3. TRYING TO DO IT YOURSELF.
Most people don’t take actual accounting as serious as they should. People think bookkeeping is so easy but they are wrong. A lot of people don’t know all the tax deductions, how to balance their cashbooks and even how to categorize things correctly. Businesses fail due to poor financial management and if the entries are not done correctly, then obviously, the reports will be wrong which could result in a financial disaster in the nearest future.
The solution: Employ a professional to handle bookkeeping for your company. This is because they are really trained and they understand the underlying principles of bookkeeping.
4. NOT LOOKING AT THE FINANCIALS ON A REGULAR BASIS.
The actual purpose of bookkeeping is so that one can use the financials in determining the profits of a business as well as its net assets. They are used for budgeting, future planning as well as financing. Understanding every aspect of each of the reports on a regular basis is KEY to knowing what is going on with your financial picture.
The solution: Take on regular review of your cash flow statements on a monthly basis. Notice trends and where make improvements where necessary. If you do not understand what you are looking at, ask for help from the accountants or lead bookkeepers on your team.
5. PROCRASTINATION.Most entrepreneur make the mistake of waiting until the last minute to complete important tasks. When we are worried about that next big sale, spending a few hours trying to balance our books from the last couple of months takes a backseat on our priority lists. When you don’t carry out important tasks at the appropriate time, you may spend thrice the time you should when you finally decide to catch up.
The solution: Schedule time for accounting and bookkeeping if you’re doing it yourself. Make it a priority or it will become one at the most inconvenient time.
6. OVERSTATING INCOME.It seems simple enough, but overstating your income and not reimbursing yourself for expenses paid can be a problem. The higher your income is as an entrepreneur, the more taxes you owe. If you pay your business expenses out of person funds and don’t reimburse yourself, you’re technically lying about your personal income and will overstate it when it’s tax time.
The solution: If possible, never use personal funds for business expenses. They don’t mix well! But if not possible, keep all of your receipts and make sure you’re paying yourself back as soon as possible when paying for your business expenses from personal accounts.
7.NON-RECONCILING BANKING TRANSACTIONS.Did you know that you can be unaware of your real cash flow even while monitoring your cash balances? One quick way to fall into this trap is forgetting to reconcile your bank transaction with your other cash movement. Therefore, while you may keep a close tab on the amount you have disbursed, you could be overlooking returned cheques, overdraft fees and other bank charges. In cases like this, you may think you have more cash than you actually do.
The solution: Get a professional to help with your account reconciliation. So this way you don’t have to worry about skipping some tabs while monitoring your real cash flow.