Accounting mistakes, no matter how small they are, can lead to bankruptcy and penalties from the HMRC. Thus, small business owners need to exert extra effort to avoid mistakes in their accounting tasks. Here we have provided a list of few useful accounting tips that can reduce your accounting mistakes.
6 Accounting Tips for Reducing Accounting errors
Planning and preparation, as well as having an awareness of common accounting mistakes, are just two of the things small business owners can do to reduce, if not avoid, such mistakes. The following accounting tips can help:
1. Establish a baseline budget to form SMART financial goals
Your budget is the ultimate factor that will limit your business expenditures. Having a baseline budget helps you know when your capital spending is in red, and if you need to search for new investors. Your budget will also enable you to identify SMART (specific, measurable, attainable, realistic, and time-bound) goals for your business. A budget will be the quantifiable baseline against which all of your goals will be measured.
2. Set up accounting rules and procedures and follow them
Without a systematic way of documenting your transactions and monitoring your cash flow, your business will go nowhere. Bookkeeping is part of accounting, and it is a routine task that involves a series of steps that need to be followed. Having separate, standardized forms and protocols for each transaction (for example, purchase orders and reimbursement forms) is the first step. These forms and protocols will help you gather accurate and consistent data that will help you monitor your cash flow.
3. Enter your accounting data promptly
If your small business doesn’t have advanced accounting software and an automated inventory system yet, you will have to manually enter all the data related to your transactions. This means you will have to religiously make entries on your ledgers or spreadsheets every time you have a transaction. Changes in your customers’ or suppliers’ status, order cancellations, and other events that will affect your cash flow will also have to be documented. Your financial analysis and taxes will depend on the data you compile, and cramming will only make you vulnerable to mistakes. Thus, you have to enter your accounting data while your memory is still fresh.
4. Regularly review your accounting data
Setting a regular schedule for the review of accounting data should be part of your accounting procedures. Even if all your data entries are accurate, changes can happen that will require you to update them. Changes in customer address, settling of delinquent accounts in between data entries, and other events can affect the accuracy of the data you already have. A regular review will help you identify which entries need updating. It will also help you find unusual transactions and see if the details related to these unusual transactions match your receipts and invoices. Reconciliation of bank and inventory data is also part of the review that you must do regularly.
5. Back up your data
If you don’t use cloud-based accounting software which backs up data by default, then you need to back up your accounting data as you review and update them. Corruption can wipe out months’ worth of data, which could be costly and time-consuming to recover or recreate from the ground up. If you regularly back up your data, that means that you will always have something to work with should anything go wrong with your storage.
6. Hire an accountant
As you may already know, accounting is tedious, time-consuming work that can lead to mistakes, especially for small business owners who are not accountants by trade. The best accounting tip for a small business owner like you is to hire a professional accountant in London.
Not only will they do these things for you accurately and timely, but they can analyze your finances, file your tax returns, and give you the advice you need to grow your business. Having someone competent to take care of these things will allow you to concentrate on other important business matters. That makes hiring an accountant a worthwhile investment. If you’re looking for a cheap accountant for small businesses in London, get in touch with us today!