5 Accounting Blunders That Can Spell Disaster For Your Business

Accounting plays a critical part in the development of any business. Irrespective of the size, it is important that you maintain a complete record of all your company transactions either in cash or credit. Failure to maintain a comprehensive record can be problematic and is why many start-ups and small businesses do not survive.

This article highlights some common accounting blunders that you must look to avoid, if you wish to prevent your business from avoiding financial ruin.

1) Failure to keep a record for expenses incurred by the business

Business owners or managers often fail to keep track of the expenses incurred by the company. The consequences of this are felt when it comes time to file company taxes. A good example is a payment for the repair of company furniture or utility vehicles. When these expenses are not duly noted in the company records, it may result in the company having to pay higher than the expected tax, ultimately affecting the company's after-tax profit declaration for that financial year.

Solution

• Keep all transaction records relating to expenses
• Make provisions in your car or have a mobile wallet where you can always keep a receipt related to business expenses.

2) Not keeping up with receivables

The business environment of the twenty-first century has led to a paradigm shift in business operation. Businesses no longer run on cash and carry transactions. When customers buy a product from a company, an invoice will be issued that denotes that that particular customer has a pending balance or owes the company a certain amount that must be paid at a date agreed by both parties.

While this appears simple in principle, it may prove challenging to implement in the long run. If a business is not keeping a tab on its account receivable, it will negatively affect its finances.

3) Inadequate cash expense records

The best way to determine a company's actual profit is when up-to-date data on cash expenses are readily available. During the process of preparing tax, the company can easily deduct its expenses from total revenue generated over a particular period to know its profit quota.

Failure to keep a record of cash expenses will result in the business paying more in its tax arrears.

Every business should record cash expenses incurred by the company over time or a database where all information relating to cash expenses will be stored.

4) Not hiring a professional to handle the business account

When you take a survey of who handles most small business tax filings, you quickly realize the business owner mainly does it. The reality is that at the end of the day, the company ends up paying more taxes than expected. Failure to get a professional to do the job often leads to overpayment on tax or underpaying, which comes with a penalty from tax regulatory agencies.

5) Not being on the same wavelength with your accountant

Business owners should always be on the same page with their accountants. Often, many business owners will visit their accounts officers, and throughout the discussion, nod their heads in false approval as they listen to the jargon being spouted from their accountants.

Business owners need to understand that they hire a professional accountant to assist them in scaling the complicated accounting procedures. Your accountant should be able to communicate with you in a language you understand. The accountant's primary interest should be on assisting you in finding a way of blocking loopholes, tax reduction, tax waivers, not confusing you with unnecessary accounting lingo.