As a CEO or Small Business Owner you may be plagued with the notion that there could be mistakes in your business’s accounting system that are being missed. On the other hand, there are mistakes you could be making and you may not realize the impact they will have on your business’s long term financial health.
Throughout the years, we’ve worked with many clients and have witnessed quite a few errors, inconsistencies, and bad habits within their accounting systems and processes. We realize that as a business owner or CEO, you often wear many hats and are not always an expert in accounting. By discussing these four common accounting mistakes, we hope to help prevent you from making them, or at least show you how to, recognize and fix them.
#1 Inconsistent Reconciliation
When accounts get reconciled, essentially you’re verifying that the transactions on your bank/credit card/balance sheet accounts match the transactions listed in your general ledger and/or your accounts receivable system. This may seem like a no-brainer, but many businesses don’t bother to do this on a regular business. Some businesses will reconcile their accounts at the end of each month and review statements whenever they get to it, but a big reason why account reconciliation should be integrated into your business’s daily routine is to keep tabs on Cash Flow.
Matching your accounts payable from your ledger to the money taken out of your accounts keeps you informed of your company’s cash flow. Busy business owners who handle a lot of the finances on their own may quickly login to their online business accounts to check transactions and balances - which is great to know how much cash a company has on hand - but your bank account balance is only part of the equation.
The second half of the equation is where reconciling your accounts comes into play. You need to continually compare the ledger to the deposits in the bank. This helps to catch errors sooner than later and eliminate hiccups in cash flow.
The Fix - Consistent, Timely Reconciliation
Your Accountant should reconcile every single balance sheet for every account each month, without question. This process is imperative if leaders want to have confidence when they review their income statements. It’s important to have regular, up-to-date reconciliation of all accounts so statements can be reviewed timely and with confidence.
Your end of the month reconciliation not only balances the books for the month, but it provides the data to feed your KPIs on a monthly basis. The knowledge gained from carefully monitored KPIs is a valuable asset to your company because it can help you make better business decisions by identifying opportunities for growth as well as areas in need of improvement. Once you have established the KPIs your business wants to focus on, you need to check them on a consistent basis, and they need to fed by timely, accurate, reconciled data.
#2 Inaccurate or Late Data Entry
Bookkeepers are in charge of maintaining your books closely day in and day out. They generally do all data entry into accounting ledgers in software such as QuickBooks™. Wherever there’s manual transaction entry, there’s a chance for errors. Let’s face it, we’re all human and we all make mistakes, but one missed keystroke can throw the books completely off-balance.
What happens when your bookkeeper is sick, takes a vacation, or even worse, quits? Who will complete their work when they are gone? If they were to quit, is there a system in place for someone to pick up where they left off?
Besides the frustration of having to deal with overdue data entry, and less-than-useful reports as a result of inaccuracies, outdated financial processes can actually cost your business significant money.
The Fix - Automation
Automation not only speeds up the process, but it actually lowers your accounting cost. It eliminates manual processes and streamlines places where you may have had redundant data entry. Timesheets are a great example of a manual process that benefits greatly from automation, as they often involve redundant data entry that’s simply not necessary with proper technology.
For example, your company might have employees fill out their timesheets, which are then entered into a spreadsheet. That spreadsheet is emailed to a bookkeeper who has to re-key the data into the payroll system. This means the same work is being done multiple times, which is a sign it’s time to integrate automation into your business.
The same is often true for expense reports: employees first enter their expenses into a spreadsheet and then hand them off to someone else for entry into the accounts payable system, involving one too many unnecessary steps in the process.
To learn more about apps that automate data entry, check out this video...3 Killer Apps that Integrate with QuickBooks
#3 Innacurate Reporting & Late Statements
Every moment you’re unaware of the current state of your finances is one more moment you’re at risk for failure. In finance operations, if the bookkeeping isn’t completed by a certain day each month, or you get statements and reports late constantly, your business has increased risk.
There could be a huge problem that you are unaware of until you get last month’s report two or three weeks into the next month, and then what? You’re scrambling, and putting out another fire yet again. You can’t be strategic if you’re constantly in crisis management.
Having real-time management reporting is invaluable to making proper spending and operational decisions. And you need to trust the reports and numbers, otherwise, what’s the point? Business is fast paced, and being strategic is all about possessing the right knowledge to have confidence in your decisions.
The Fix - Timely, Accurate Reporting
Timely, accurate financial statements and Management reports are the key in staying on top of your business’s financials. Consistent review of these reports allow you to dive deeper into the financial standing of your business. Instead of letting them sit in a pile until you make time to look at them, as a CEO or small business owner you should have a plan set in place for when you receive these reports, and when you will review them. It may seem obvious to mention the importance of reviewing these reports consistently, but so often they get delayed or overlooked.
You may think a quick review of financial statements is enough with lack of time as an excuse. However, businesses need both financial and management reports to run better, grow faster and make more money. Your business needs financial reporting for compliance and making sure your books are up-to-date. Management reporting is used to make better business decisions backed by data.Read: The Best Way to Use Financial and Management Reporting for Small and Medium Sized Businesses
#4 Lack of Standardized Processes
Does your accountant follow a clearly defined process and leverage the features inside of QuickBooks, every time? Are bills being paid at the right times? Is payroll coded to the same payroll general ledger account every time - or do you make adjustments in near real-time, and account for payroll based on where people are actually spending their time? It’s important to standardize processes in QuickBooks to eliminate errors, and improve efficiency and consistency.
When you standardize processes, you eliminate unnecessary issues, mistakes that could have been avoided and roadblocks that can affect business growth.
Growing a business takes clarity, and the ability to both map out and follow through with your vision with unwavering confidence. You simply can’t do this with dreams and aspirations; you need standardization to achieve scalability.
In order to scale, service businesses need to develop something that’s all too often an afterthought and certainly not as sexy as innovative thinking - standardizing processes and operations.
The Fix - Standardize Processes
Standardization optimizes consistency while minimizing shortfalls in quality. The more standardized your processes are with regards to projects, roles, and tasks, the more scalable your business. Consistency is imperative to the success of any business.
Scalability allows a company to successfully grow and adapt to increased volume without compromising on quality, performance, service, or any element that’s key to the business.
Eliminate mistakes with Optimization & Integration
If you implement these best practices in your accounting system and processes, you will likely eliminate common mistakes small businesses face.
However, if you still need help with setup of optimization and integration for QuickBooks, contact us for a free consultation.
When we take you on as a client, we take the time to truly understand your business. We integrate all your financial systems and automate weekly and monthly processes to streamline operations. We create flowcharts and document your financial operations to ensure your accounting runs like clockwork. And we build and optimize your system to feed the KPIs, Financial Reports and Management Reports you need to make strategic business decisions.
We are the experts in QuickBooks accounting system design for growing businesses so you don't have to be. We can get the most out of QuickBooks by leveraging its hidden features and integrating it with 3rd Party Tools and Apps that extend its capabilities. We constantly research and test new technology and build your system to provide seamless, integrated financial management that helps drive profitability.