If you’re an SME business owner, chances are your business’s accounting practices has crossed your mind at least once. Love it or hate it – bookkeeping is such a vital part of running a business that it is often the life raft that keeps businesses afloat. If you’re reading this post, you’re probably having nightmares about what’s cooking in your books, but before you unnecessarily lose more sleep, read on and you might just realise that your books aren’t the accounting nightmare you think they are.
The number of accounting errors you might find, is endless. Some accounting mistakes are tiny, inconsequential and can go undetected quite easily until your next report is unbalanced. These errors are usually easy to correct. But there are also more severe mistakes that can have substantial repercussions and a massive effect on your business’s financial health. Below, we’ll discuss 7 of the most common accounting nightmares and how you can get back to getting a good night’s sleep.
1. Human Error
Whether you’re making use of a proper automated accounting software system, or just keeping track of your finances by using an Excel spreadsheet, one thing is certain - attention to detail is KING! The most common error when it comes to data entry / data capturing, is caused by swopping two digits around – typing in 24 instead of 42. The capturer is usually capturing this data in a haste, so the mistake often goes unnoticed.
SOLUTION:
Set aside sufficient and undisturbed time for you / your data capturer to focus solely on this one task. Investing in a proper ERP accounting system (such as Sage 300cloud depending on the size of your business) will simplify the process and save you time and money when it does come down to having to single out this data entry mistake.
2. Disorganized bank statements
Reconciliation is the process of checking that the account balance reflected in your business’s books is exact and equal to the actual balance of your bank account. Being disorganized with your paperwork and bank statements will not only make your life unnecessarily difficult when it’s time to reconcile your accounts, but it can also have a dire effect on your finances. If you’re not downloading your bank statements and examining them on a regular basis, you may overlook that error in your last transaction and just like that a R 1000 is gone. It’s quite simple; the more disorganized you are, the more money you are likely losing - ergo massive accounting nightmare.
SOLUTION:
Most banks offer the option to email your business’s bank statements to you monthly. Make use of this option if you’ve made a habit of not downloading your statements, and then utilize software to drive the reconciliation process. Reduce your business’s overall financial risk by using the functionality of an ERP Solution. Automating this process enables you to cut down on the time, cost, and potential for errors associated with manual bank reconciliation. Reach out to us if you need help with getting this set up.
3. Poor communication between accountants & operation staff
It’s important to have clear communication between your bookkeeper/finance department and the employees actively working in operations, so if they're not communicating properly it might be detrimental to the financial health of your business. If your staff isn't keeping a proper record of all transactions, monitoring all of your income and expenditure will become a nightmare. Having a proper accounting solution in place is the top choice simply because a digitized paper trail is the easiest way to keep track of all transactions, however even just having an old school physical paper record is better than having nothing at all.
SOLUTION:
Opening communication channels between all the relevant departments and having clear concise rules and processes in place will ensure that all involved parties know what is expected of them. This still leaves room for human error though, therefore we recommend automating the process that employees use to capture and record transactions since it is the safest and easiest way to ensure that your transactions are recorded properly. Additionally, it will save you money by ensuring that your employees’ work structure is optimized to ensure maximum efficiency. There are many different types of automation software on the market. We recommend BPM for Sage together with .integr8 for its ability to be implemented and used without the help of a software developer.
4. Thinking you don’t have to take accounting seriously
If you think you don't have to take accounting that seriously, think again! No matter the size of your business, your books reflect a precise image of your organization’s financial health which allows you to monitor how well you’re performing in a given period. Every single transaction, whether a small or large expense, must be recorded and properly classified in your accounts. This is the key to successful accounting.
SOLUTION:
Wise up about accounting when running a business. Attend a webinar or a workshop, appoint a bookkeeper to handle it for you or read up on the do’s and don’ts of accounting. You’ll soon realise how important it is to take your books seriously, even when it comes to buying a few sandwiches from Spar for a staff lunch. The slip must be kept safe to prove the transaction and the R90 you spent must be recorded in your books.
5. Journal Entries & Procrastination does not go hand-in-hand
We’ve said this before, but we’ll say it again because that’s how important this is – accurate records are the backbone of accounting. If you’ve forgotten to make a journal entry, or have entered the wrong amount, you can get stuck in what feels like a nightmare. Reports will be unbalanced and the issue will have to be isolated and resolved. This takes time to resolve and can cause a snowball effect in other reports and accounts, which is hard to get on top of.
SOLUTION:
Ensure that you update your journal entries frequently and that all transactions are recorded correctly. Do so successfully by setting aside time for yourself or your bookkeeper to attend to this every day and by making sure that nobody bothers you whilst you’re busy with this task. Don’t let the entries pile up, especially if you've discovered a mistake that needs to be rectified. Avoid this accounting nightmare by staying on top of your journal entries daily if you can and sort out any issues immediately.
6. Managing all of your accounting in-house
When owning and running a small business with limited income, handling your own bookkeeping might seem like a reasonable way to lower your expenses and save money. However, this decision could actually be costing your company money. If you’re guilty of any of the abovementioned points, then this decision is definitely affecting your pocket.
SOLUTION:
You don’t need to hire an accountant full time to handle things like journal entries, bank recons and reports. Outsource your accounting to a freelance accountant who’ll dedicate a few hours every week to your books to make sure your business’s financial wealth is taken care of.
7. Failing to budget is planning to fail
Not allocating clear budgets to each project you endeavour to take on, could end up draining your cash reserves. Failing to effectively budget also makes it extremely difficult for you to reign in a venture that is costing you more than it should. This might cause your business to spend its limited funds on developments / projects that won’t produce a return on investment.
SOLUTION:
Do a proper budget allocation before the start of each new quarter and stick to it. Allocate funds to each department in your business and make sure you have the necessary levels of approval in place if you have employees that will be in charge of executing projects. An easy way to ensure that nothing goes without your say-so, is to implement a workflow solution such as BPM for Sage and have it integrate with your operational and financial software. If this is one area that you can improve on, contact us today to schedule a demo so that you can take a look at how BPM can change the way you do business.
If you’re guilty of any of the issues listed above, then rest assured you’re not alone. However, to ensure your business stays afloat, and to get some well-deserved sleep while doing so, you’ll want to do everything you can avoid these errors. The take away here is that the best way to avoid errors such as mentioned above, is to create an organized system that keeps everything in order. You’re probably better at accounting and record-keeping than you believe you are. But if you are truly having an accounting nightmare, and even if you aren’t, we can help you stay organized and prepared for any type of nightmare. We have a solution for every problem. Get in touch now to book a demo and find out how we can help you get a good night’s sleep.
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