Common Accounting Mistakes and How to Avoid Them

Managing a business effectively means being able to handle money. If your financial affairs aren’t in order, then you could suffer inefficiency, as well as legal consequences. Hiring a professional accountant, or a whole team of them, might be a solution for larger businesses – but what about smaller ones?

In most cases, you can do a huge amount of good by correcting a few common mistakes, and by getting into the right habits. Let’s take a look at some key changes you might make.

Getting organised

Good accounting is often simply a matter of good organisation. If your accounts are chaotic and messy, then you’ll suffer missed deadlines and inaccurate records, which can impede the performance of the business, and could result in you paying too much (or too little) tax, or even missing a tax deadline.

A certain kind of person might prefer to get everything down on paper. But for most of us, specialised accounting software can be a major boon. Bringing in help, in the form of an external consultant, might provide the impartial, experienced set of eyes you need to make the problem manageable.

Don’t mix Personal and Business Finances

One major mistake often made by small business owners is the temptation to mix personal finance with business. While freelancers offering a service might be able to get away with this, the same is rarely true of more complex businesses with payroll and suppliers to track.

If you fail to keep your personal and business finances separate, then you could end up spending more time disentangling the two at the end of the year – or, you could fail to do this effectively, and end up spending much more than you otherwise would.

Misclassifying Expenses

Your business expenses are hugely consequential, and it’s important to make sure that they’re properly catalogued. If you don’t classify your expenses, then you’ll find it very difficult to analyse and optimise them. For example, if the coffee you’re buying when entertaining clients falls under the same umbrella as your spending on paperclips, then you’ll never know when you’re spending too much on one or the other.

The best way to manage this problem is probably with the help of a Chart of Accounts. This will allow you to assign every item of expenditure a unique reference number, which will make it much easier to analyse your finances.

Even if you’ve never heard the term ‘Chart of Accounts’, the chances are that you’ll be familiar with the basic building blocks. If you’ve held multiple accounts at the same bank, then the idea of keeping your money in separate digital ‘baskets’ might be familiar. In other words, the barrier to entry might not be as high as you think!