New technology and accounting software don't mean that accounting mistakes are a thing of the past. In fact, even with all of the new tools at their disposal, businesses still make costly mistakes on a regular basis. Fortunately, you can take one big step to solve these mistakes and avoid them in the future.
In this blog post, we'll outline some of the most common accounting mistakes and suggest ways to prevent them. We'll also provide information on affordable accounting solutions to help you get your business back on track. So read on for helpful advice!
#1. Accounting Errors
Your online business may rely on automated payment platforms and accounting tools, but there is still room for human errors. These errors are what usually cause money loss. While you cannot prevent these errors, you can put proper accounting procedures in place so that your books are always accurate.
See if your online business has ever encountered these errors before.
- Forgetting to record a transaction
- Misplacing an account item
- Erroneously switching digits in amounts
- Recording wrong transactions
- Duplicating a transaction
- Recording personal expenses as business expenses
- Treating expense as income (and vice versa)
#2. Last Minute Reconciliations
If you're a busy business owner, you might think that reconciliation can wait. After all, there are always more pressing issues to deal with, and finding the time to go over your records with a fine toothed comb can be difficult.
However, reconciliation is a crucial financial step you must do for your online business. By ensuring that your records are accurate and up-to-date, you can benefit from the following:
- It's important to know how much cash or credit you have available. This can help you avoid splurging and underpaying your vendors.
- Checking your statements can help you catch any fraudulent activity. If you see unrecognized transactions, you can report them right away.
- Sometimes banks make mistakes. By regularly reviewing your statements, you can catch errors and get them corrected.
- It pays to know if your customer has paid you or if their payment failed.
#3. Lack of Papers
Starting an ecommerce business is a great way to enter the world of entrepreneurship with relatively low overhead costs. Still, it doesn't give you reasons not to be tax compliant and avoid accounting and tax solutions.
Does your ecommerce business have proper accounting for tax solutions? You are still heavily bound to comply with IRS publications and tax filing despite being a virtual store. So aside from financial statements, here is some documentation you need to hang onto.
- Invoices
- Cash memos
- Receipts
- Pay in slips
- Cheques
- Debit notes
- Credit notes
- Vouchers
#4. Misinterpretation of Profit and Cash Flow
Any business, whether it’s a small mom-and-pop shop or a major corporation, needs to generate profits to stay afloat. But, simply generating profits is not enough to ensure long-term success.
Have you ever wondered what separates a profitable business from one that goes under? You probably think it depends on how much money the business brings in. But in reality, it's cash flow.
Your online business can be highly profitable yet still find itself unable to pay its bills, and the reason has to do with how cash comes in and out. A business may have high profit margins, but it will quickly run into trouble if it also has low cash flow. That's because profit is only part of your accounting equation.
Total Revenues - Total Expenses = Accounting Profit/Loss
The other part is how much money the business has to cover its expenses. When your business has high profits but low cash flow, it's said to be "asset rich and cash poor." And unfortunately, it's a situation that often leads to failure.
So if you're running a business, don't just focus on making a profit; make sure you're also keeping an eye on your cash flow by learning to collect payments and pay bills. Because in the end, that's what matters—staying afloat.
#5. Failure to Optimize Accounting Software
If you're running a small business, you might be tempted to save money by using accounting software alone instead of hiring an ecommerce accountant. However, this can be a costly mistake.
While accounting software can help you keep track of your finances, it can't provide the same level of expertise and accounting service as a qualified accountant.
Accountants can offer valuable advice on financial planning and taxation, and they can also help you to spot potential problems before they become serious. Plus, accountants can access specialized software that can provide in-depth analysis and forecasting. Still, they can be costly. As a result, outsourced accounting is usually the best accounting solution for small online businesses.
Get Accounting Management Solutions with Unloop
Here at Unloop, we help small businesses save money by streamlining their online operations.
We're a team of professionals equipped with the latest financial tools that enable all functions of your ecommerce business to capture productivity growth potential from time-cost reductions, greater accuracy, and increased control. In other words, we help businesses make more money while spending less.
Whether it’s finding ways to reduce expenses, increase efficiency, or improve top-line revenues, we have the expertise and experience to help your business succeed. Contact us today to learn more about how we can help you save money and grow your business.