Accounting is an essential component of every business regardless of size. It’s important to keep in mind the basic do’s and don’t’s of accounting that not everyone may know, but should! These are common and often unnoticed mistakes that can lead to future problems.
Cash Flow vs. Profit
Don’t assume that profit also means there’s cash flow. What’s the difference? Cash flow is the inflow and outflow of money while profit is the extra money left over after expenses are deducted. It would be nice to assume that profit leads to cash flow, but that could give you a distorted view of how well (or not) your business is doing.
Bad Bookkeeping Records and Communication
Not taking your bookkeeping seriously nor communicating with your bookkeeper enough are simple mistakes that need to be avoided. Effective bookkeeping begins with recording each and every transaction. This includes not forgetting to record small transactions—these add up over time. Not only should your transactions be recorded, but they should be categorized. Organization is important for accurate records.
To have these transactions recorded appropriately and accurately, you must communicate with your bookkeeper on a regular basis. They should know what is going on within your business. Not enough communication can lead to unreliable records, as well as more work for both you and your bookkeeper. By avoiding these bookkeeping mistakes, you will be given a more reliable picture of where your business stands.
Employees vs. Contractors
Establish if you have employees or contractors. This must be displayed in your accounting records. Employees are on payroll and contractors are 1099. This is an important difference that you will be held accountable for and must specify.
Don’t Go Over Budget
Make sure you set a clear budget for projects. You don’t want to overspend and hurt your business. Stick to a budget that you feel comfortable and safe with, that also isn’t detrimental to your business’s health.
Making any one of these changes can have a positive impact on your business. It’s never too late to correct mistakes and strive to be better.