For any business in general, accounting is a crucial part of operations. But for small- and medium-size businesses (SMBs) in particular, it’s an aspect that should be handled with utmost care. Given the size of the organization, even the slightest mistake could mean the end of the business, as accounting errors could cost money, take up time, or lead to an audit.
Although you can’t control certain aspects in business, such as the economy and consumers’ buying trends, you can reduce the chances of accounting errors happening. Primarily, you could make use of services that offer online accounting for small businesses, but there are various other ways you can mitigate errors.
The following tips can help you reduce accounting errors in your business.
1. Create a Budget
Creating a budget can help you be aware of your business expenses. After all, your business could be running without you knowing whether you’re overspending or not. To fix that, you should create a budget so you know which expenses are necessary and which ones can be cut down.
Not only will this help you manage your finances better, but it will provide you with a reference against which you can compare data. You can keep track of your business spending and minimize accounting errors in the process.
2. Use a Software Solution
Maintaining accounting books can take up a lot of time, and if it’s done manually, it could be prone to human error. To mitigate this, as well as to improve productivity, you may want to invest in a software solution.
With accounting software, you can track transactions and reports, create and send invoices quickly, and calculate business balances. Since these processes will be automated, so long as you input the right data, there’s little chance of errors occurring.
3. Update and Back Up Your Files
Updating files is a straightforward solution. If you want to reduce accounting errors, you need to ensure that your files on all business transactions are up to date. Updating your accounting book allows you to avoid errors of omission—errors that may cause you to file taxes incorrectly, spend more money, and create incorrect financial statements.
Once you’ve ensured that your files are up to date, you should back up the data as a precaution. Given how important those files are, losing the data could lead to your business losing money and time, to the extent that it might threaten your business’s survival. Make sure to store the backed data somewhere that’s safe and easy for you to access.
4. Check Your Records
Accountants may make mistakes occasionally, so it’s important to be proactive in catching these mistakes. By checking your records consistently, you could catch errors before they lead to problems.
You can do this by comparing the numbers in your record to those of an external document. This accounting process is called reconciliation. If you notice a difference in the numbers, you can easily remedy it before it becomes a major problem for your business.
5. Make Sure Financial Control Is Shared
It may not be a good idea to assign all financial tasks to a single person. Though it might improve productivity to have only one person handle it, it could also lead to theft or fraud.
To prevent this, you should ensure that financial control is spread out among several persons and that the books are checked consistently so any errors are quickly spotted. This way, you can keep a better eye on the data and ensure that nothing shady is being done to it.
6. Save Receipts and Documents
Most people have a habit of throwing out receipts and old documents as they declutter, because they find no use for these things. However, it’s important to save receipts and documents of business transactions as proof for your records. If your accounting book and budget don’t match, you can easily check the data against these documents to see if you missed anything or made a mistake.
As a precaution, you should keep documents and receipts for at least three years if you’d like to avoid accounting errors.
Though accounting errors are problematic for any business, they pose a bigger threat to SMBs, who don’t have as many resources as big corporations. If you’d like to prevent problems occurring for your business, the tips mentioned above can help you reduce accounting errors and ensure that your business continues running smoothly.