Bookkeeping mistakes can seriously erode business efficiency
Bookkeeping - and the subject of avoiding bookkeeping mistakes might seem like a boring topic! But put simply,
good quality, up-to-date and accurate bookkeeping is the absolutely essential backbone of a sound business
operation.
A good business has good production, marketing, distribution and administration. A good business has all areas
firing, that's why it's good. But without accurate and timely measurement - how would you know?
Here are some common mistakes which are easily avoided:
Bookkeeping Mistake #1:
Doing it all yourself.
I know you're doing it to save money, but let's just back up a little and think about this.
While there are definite advantages to having an intimate knowledge of the accounting records, business
owners (or their long-suffering spouses) don't always have the skills and experience to do the job efficiently. The
consequences are errors, inaccurate management information, and more time and expense at the end of the year for
your tax accountant sorting things out.
Unless you are trained as a bookkeeper, your time is better spent (I mean more profitably spent) utilising the
skill base you do have, and leveraging those skills in strategic pursuits. Bookkeeping skills can
always be bought at a reasonable hourly rate. You, on the other hand are vastly more valuable.
So if you're not absolutely clear and efficient on what you're doing, do a training course, or preferably hand
the job over to someone competent while you go and build your business.
Bookkeeping Mistake #2:
Overlooking reimbursable expenses, and poor petty cash records.Legitimate expense claims can be lost or
improperly recorded because of the lack of a simple system to record and reimburse expense claims and petty cash
expenditure - and it's really not very hard to do it right.
To maximise efficiency, and minimise confusion, you need to have a uniform office procedure for all
expenditures, covering reimbursements, petty cash spending and normal creditors. The procedures should be backed up
with clear and simple paperwork which records what things are for, who authorised it and when, a ledger code for
the bookkeeping, and a payment authorisation.
Petty cash can be basically "self-balancing" through a simple imprest system which reimburses against aggregated
expense summaries - as simple as a coded list with receipts attached.
Other reimbursable expenses can follow the same format, so there's really little excuse for overlooking any
legitimate business expense claims.
Bookkeeping Mistake #3:
Not keeping your bookkeeper informed.Don't assume that a bookkeeper will work best locked away in a quiet
isolated back room. It's actually very useful for your bookkeeper to have not only all the paperwork, receipts and
agreements, but also first-hand knowledge of key operational events, as they happen, and as they're planned.
That way there's less chance of missing something important, and when transactions are properly understood, they
can be accurately recorded the first time.
Bookkeeping Mistake #4:
Inadequate data backups.The time and physical cost of keeping daily backups is normally very low, and can save
hours of grief and wasted time when the business software data becomes corrupted, or a system fails - as sooner or
later it will! And make sure the backups are stored off-premises.
And if you rely on spreadsheets or other software in the accounting processes, make sure that these too are
included in the backed-up files. Specialised spreadsheets are best kept in one central directory to enable easy
identification and backup.
Bookkeeping Mistake #5:
Entering transactions into the wrong period.
This is so easily (and often) done - yet so hard to detect and fix! Inexperienced bookkeepers will often enter
transactions into an earlier period, after reports have been produced for that period. Or transactions are
inadvertently entered with an incorrect date.
Lower-end software systems such as MYOB and Quickbooks are particularly susceptible, because it is possible to
operate them without period locks or procedural controls.
Errors resulting from loose data-entry controls can dramatically complicate reconciliations, waste
hours trying to find and explain discrepancies distort your management performance reports, and create enormous
confusion.
Your software systems office procedures should clearly set out instructions for correctly dealing with
"prior-period" transactions as well as double-checking that transactions are entered with a correct date.
Bookkeeping Mistake #6:
Miscategorization of income or expenses.This also leads to misleading or incorrect reports, and all the
consequences which follow. It is essential that a chart of accounts which matches both the business's information
requirements and is in accordance with generally accepted accounting principles be established and carefully
followed.
The distinction between balance sheet and profit and loss items is often misunderstood - yet fundamental to the
preparation of meaningful financial statements.
Clear and regular lines of communication between the accountant and bookkeeper can help to minimise errors.
Bookkeeping Mistake #7:
Over-delegation of accounting responsibilities.By all means delegate the chores - but as in any other area of
your business - keep control by following performance benchmarks closely, and retain crucial decision controls,
such as payment authorisation and ordering, exclusively to yourself.
For example, ensure that bank statements come to you first, and that you regularly receive cash reports, and
bank reconciliations.
The potential consequence of being detached from the daily ebb and flow of accounting information is the
loss of understanding and managerial control, or worse, the risk of fraud.
Bookkeeping Mistake #8:
Failure to perform and review bank reconciliations.
As well as cash being the lifeblood of any business, a crucial element of keeping accounting records up to date
is to ensure that the records are regularly reconciled to external records such as bank statements.
Failure to perform regular reconciliations leaves huge gaps, which can be filled by all manner of errors
and unfortunately, fraud.
Bookkeeping Mistake #9:
Inadequate categorisation of employees.Not analysing employee functions and accurately reflecting the cost
allocations in the accounting records can disguise or hide operating inefficiencies, and lead to overpayment of
workers compensation insurance because of inadequate risk assessment.
The business's chart of accounts and where necessary, the accounting entries, should provide for accurate
classification and cost allocations for all employees. (Naturally this also be consistent with written job
descriptions).
Bookkeeping Mistake #10:
Inadequate attention to GST categorisation.With computer software systems it's usually easy to set up a
default GST status for every transaction. However if errors are made, which they are all-too-frequently when
classifying non-eligible or partly creditable expenditure, the mistakes can easily accumulate. Rectifying mistakes
can be expensive, especially when allowed to accumulate, and can attract Tax Office penalties.
Setting a default GST status can save a lot of work. But you must carefully note any exceptions,
and override the data entry details whenever appropriate.
Mistake #11:
Inadequate accounting for liabilities and accruals.Liabilities and accruals are those income and expense items
which are not paid for at the time they occur. Debtors and creditors are obvious examples. It often takes a little
accounting experience to recognise such items, which if not entered correctly in the records, can lead to an
incorrect profit calculation, and poor cash flow planning.
Examples include prepaid expenses, and income (or deposits) received in advance of a service being performed, or
the delivery of goods sold.
Mistake #12:
Incomplete startup expenditure tracking, intermingling private and personal expense.When starting a business,
it's important that all the early expenses are captured for later entering into the business's records, for
accurate reflection of what the business has done, and what it owes you.
Establish a separate bank account for the business as soon as possible, to avoid the accounting and tax problems
which can arise from the poor separation between business and private expenses.
Mistake #13:
Choosing a computerised accounting system primarily on the basis of the price on the box.Despite the
optimistic claims of the lower-end accounting software suppliers to be "all things to all people", the reality is
they have limited functionality. Low-cost accounting software systems will always be a compromise, and your real
costs will include the time spent working around the things the software can't do, in order to meet the needs of
your business.
To keep REAL costs down, do a thorough needs analysis, and consult users (preferably from your own industry)
before deciding on a software solution.
The basis of any software choice should be the measurable productivity gains compared to total costs. The
"cheapest" package doesn't automatically meet this requirement.
|