Don't Let Costly Accounting Mistakes Set you Back

Over the years, I have seen several small to medium sized businesses find out their company wasn’t as healthy as they thought. While there are a multitude of reasons for this, the most avoidable involve simple accounting errors that have grown into big problems. With tax time over, now is a good time to review your accounting information for these common problems:

1. Ignoring your Balance Sheet. For most small business owners, the income statement is the only financial report they review on a regular basis. Because profitability is often your top concern, this makes sense. But, your balance sheet can point out trouble ahead and help you avoid it. Next to profitability, cash flow is most business’ biggest concern. Your balance sheet is a great indicator of future cash flows. If your accounts receivable balance is growing too fast, it can be an indication that you are doing a lot of work for customers who can’t (or won’t) pay. While it is nice to see that revenue on your income statement at the time of sale, it is meaningless if you cannot collect. Unfortunately, most businesses don’t realize they can’t collect until the customer defaults. A regular review of your balance sheet can help you avoid an unfortunate surprise down the road.

2. Inaccurate or incomplete job costing details. Your income statement can tell you whether or not your company made money for the month, but were your margins where they should be? Without accurate job costing details, you may never know if you underbid jobs or overspent fulfilling an order. Worse, without job costing details to verify your original estimates, your company may continue to underbid jobs in the future. An accurate and detailed job-costing system is essential in order to understand the drivers of your company’s profitability and to ensure future profitability.

3. Inaccurate or missing Government filings. Too often I have seen clients hit with thousands of dollars in penalties for failing to file a simple report. For example, they withhold taxes from their employees’ paychecks and remit those taxes on time every week. Because they are unaware of the filing requirement, they do not file their required payroll tax returns until they receive a notice in the mail. Even though they have fully paid their taxes, they face significant fines or countless hours of work in order to correct the situation.

A professional bookkeeper can help you avoid these mistakes, but if you do not choose to use a professional firm, be sure to watch out for these costly errors!