23 November 2020

5 Costly Accounting Mistakes Made By Small Business Owners And How to Avoid Them

by Rachelle Lee

As a small business owner you assume various roles in your company. But the one area where hiring experts pays dividends (literally) is accounting. Without time to give accounts the full attention they need, and without the skills professional accountants are taught, business owners who play company accountant in between being CEO, CFO, and whatever else, are inevitably going to make mistakes.

In this article we explore:

Compliance. Reconciliation. Auditors. All terms that business owners should have at least a vague awareness and understanding of. Some may experience a little chill down the spine when reading them and say to themselves: ‘Yes, I know my business needs to be compliant, but…’ Or, ‘ Yes, I know I need to carry out regular reconciliations, but…’ Or even, ’ Yes, I know the auditors will show up in a month, but…’

And the ‘but’ usually is that business owners are simply too busy with other things to give their accounts the time and attention they need. So, certainly in the early days of a business, it’s likely that owners will put on an accountant hat (whatever that looks like) and assume accounting responsibilities themselves, along with the zillion other things they have to do.

They will convince themselves that this DIY approach will save them a fortune on accountancy fees. But… inaccurate accounting and non-compliance can be some of the most expensive mistakes a business makes.

And many of those errors could prove far more costly than the monthly or annual fee charged by an external accountancy firm.

Not only will engaging the services of a firm of accountancy professionals give you more time to concentrate on the other aspects of your business you actually enjoy; their skills, insights, and unerring attention to detail can save you hassle and money too.

The 5 Most Costly Mistakes Small Business Owners Make

Later on in this article, we will show you the things to look for when hiring an accountancy firm. We will also show you why over-reliance on accounting software is no match for having real, live human accountants in your corner.

But first, let’s look at some of the most common accounting mistakes business owners make, and how finding the right accountancy firm can help stop such errors damaging your business.

The five most costly mistakes are:

  1. Inaccurate bookkeeping
  2. Thinking profit equals cashflow
  3. Leaving reconciliations until the last minute
  4. Not putting procedures into place
  5. Over-reliance on accountancy software

ACCOUNTING MISTAKE 1 – Inaccurate bookkeeping

Business owners preoccupied with other work often can’t give enough time and attention to establishing and running a proper bookkeeping system. Yet having accurately categorised records of every financial transaction a business undertakes is vital to the accounting process and for auditors. This is also one of the areas where an expenses management solution will add a lot of value.

Professional accountants know this, of course. They can help ensure accurate bookkeeping tells the story of how well (or otherwise) a business is doing, and keep those auditors happy by helping your business stay compliant.

Recommended reading: What Are Reimbursable Expenses and How to Manage Them Efficiently

ACCOUNTING MISTAKE 2 – Thinking profit equals cash-flow

A profitable business can still experience negative cashflow. Many business owners fail to grasp this concept, and that can lead to major problems, including insolvency.

A professional accounting firm will closely examine all your accounts to build an in-depth understanding of how well your business is performing. They will use their skills to:

  • Identify the factors that are driving cash-flow
  • Help manage business costs
  • Ensure the accuracy of invoicing

ACCOUNTING MISTAKE 3 – Leaving reconciliations until the last minute

Ensuring business expenditure aligns with the information included on financial records is vital, not just for business owners, but auditors too. They will be looking for any abnormal activities that will get their alarm bells ringing, as they could be a sign of an accounting mistake or fraudulent activity.

Despite its importance, reconciliation always seems to fall down to the bottom of the to-do lists of busy business owners, when really it should be pinned to the top.  Because errors that go undetected will not resolve themselves. Instead, they have a habit of growing into bigger and bigger problems.

Professional accountants are experts at reconciliations, and they have the time to give them the full attention they deserve. They can perform regular reconciliations and implement automated expense reporting so business owners always have an accurate picture of their cash position.

ACCOUNTING MISTAKE 4 – Not putting procedures into place

Professional accountants earn their living by being methodical and paying attention to minute details. Many business owners don’t need these kind of skills to thrive day to day. But they do need accurate accounts as, inevitably, auditors will examine the company’s finances for accuracy, and they will be looking for documentary evidence to back up any financial statements.

Accountancy firms make it their business to help their clients accurately record and file such financial information. They know what auditors will look for, and the fines and penalties that are levied on businesses for non-compliance.

Recommended reading: Company Expense Policy Best Practices: Laying Foundations Before You Spend Money

ACCOUNTING MISTAKE 5 – Over-reliance on accountancy software

There are a lot of excellent tools and software that help make accounting a lot easier. Business expense management software and other tools can help business owners and accountants save time, particularly when it comes to data entry, pre-accounting and pre-compliance workflows. It gets more tricky thought when it comes to providing in-depth analysis, insights and forecasting, and you may want to hire a professional accountant at a top accountancy firm.

AI and cloud-based solutions make accounting faster, better and cheaper, but they are still no full substitutes for getting a highly trained accountant taking responsibility for your finances.

How to Find The Right Accountancy Firm

Hopefully, you are now persuaded that the DIY approach to accounting simply is not best for your business, especially if it is growing. So, having made the decision to engage the services of an external accounting firm, how do you go about finding the best?

Firstly, you should utilise the resources that many governments make available to SMEs to help them find the best accounting firms. Often, there will be an online directory of firms, with each outlining the services they provide and the experience they offer.

Below we outline some of the key features you should look for in an accounting firm:

  1. Experience
  2. Licenses
  3. Digital savviness
  4. Good reputation
  5. Likeability
  6. Flexibility

1. Experience

Check to see if the firm has experience of providing accountancy services to businesses operating in the same or a similar sector to you.

2. Licenses

Reputable accountants will be licensed to practice accountancy by a local regulatory body.

3. Digital savviness

Modern day accountants should know how to use the latest cloud-based solutions. The kind of tech that is available (and understood) by professional accountants will go way above and beyond any of the apps or software the average business owner is likely to use.

Tools such as corporate expense management software can help speed up the service the firm provides, as traditional accounting firms may still be reliant on laborious manual processes for much of their work.

4. Good reputation

Find out what clients say about an accountancy firm, and see if clients in a similar sector to you are happy about the service they receive.

5. Likeability

Any accountancy firm you hire is going to have a pretty important role to play in the future of your business. So it is important you get along with the people at the firm. You need to trust them and to be convinced that they have your best interests at heart. The best way to find out if you’re likely to get along is to arrange a meeting where you can find out face-to-face (or via Zoom) what they’re like, how they work, and how they can help you.

6. Flexibility

Multi-skilled accountancy firms should be ready to turn their hand to various areas to meet your financial needs.

Your budget

Inevitably, your choice of accountancy firm will be influenced by your budget. As a small start-up, you are unlikely to need the services of a firm with a multi-storey, all-glass HQ in the capital. But you don’t need to!

Pick firms that meet your needs and can provide services for fees that match your budget. If funds are strictly limited, look for firms that offer a fixed fee pricing structure. Some firms charge an hourly rate which makes it more difficult to keep track of expenditure.

The benefits of hiring an accountancy firm

It might say ‘Accountants’ on the firm’s website title panel and their letterheads, but most accountancy firms provide more services that could be of great value to your business. The best firms are often experts in many, if not all of the following areas:

  • Accounting (obviously)
  • Audit / Taxation
  • Corporate Services
  • Payroll
  • Issuing Work Visas

Having one firm supply your business with all these services cuts out the hassles of either doing them yourself, or using multiple suppliers. By hiring a firm to carry out multiple services, your chosen accountants will really develop a strong understanding of your business.

Concentrate on what you do best, and let accountants focus on what they do best

The above title neatly sums up the key message we would like you to take away from reading this article. Being a small business owner does require you to wear certain different ‘hats’ as you assume various roles within your company.

But the one area where hiring external professional experts can really pay dividends (literally) is accounting. If numbers aren’t your thing, and you don’t want to be dealing with auditors or waking up in the middle of the night with compliance and reconciliation on your mind, engaging a professional accountancy firm really can be one of the best business decisions you make.

About Volve

Let Volve help you get your numbers right. Volve’s corporate card comes with an automated expense management solution and reporting tool. This enables all functions of business to capture productivity growth potential from time-cost reductions, greater accuracy, increased visibility and control.

Thanks to Volve, accountants can look forward to shifting resources from repetitive manual practices to realizing strategic goals that create more value and deliver higher returns.

Experience how one single solution can improve accountability, accuracy and efficiency. Test drive Volve today free for 30 days.

Rachelle Lee
Growth Hacker
Prior to scaling next-generation financial services, Rachelle lived out of a suitcase across Asia working on a 3-year research plan gathering customer insights and synthesising consumer decision journeys for global creative agencies, engaging with businesses on growth marketing, brand storytelling and customer engagement models for future business growth. She still drinks too much coffee, doing meaningful work with trailblazers and innovators to bring greater literacy to spend management solutions.

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