The accounting system is important for an owner’s understanding of the business’s health. It is also necessary to prepare tax returns and other legal requirements. Making the appropriate decisions is crucial because this.
Unfortunately, mistakes can happen, and they can have serious consequences. It is also necessary to understand the most common forms of accounting errors and how they occur to prevent them.
We asked our experts in this week’s Let’s Talk about the most frequent accounting errors made by small business owners and how to prevent them.
Let’s Talk.
Discover Other Let’s Talk Business Topics
Dan Bognar, Group Vice President & General Manager APJ, DocuSign
“Whether it taxes, financial planning, bookkeeping or payroll, accounting professionals have a lot to juggle – especially in today’s digital-first climate, where customers expect everything to come with speed and convenience.
“Unfortunately, many accounting teams are still clinging on to traditional pen-and-paper based contract management processes, which can create inefficiencies and waste time. According to DocuSign’s latest research, Time to Value: How to achieve business growth, competitive advantage and productivity, when it comes to SaaS adoption by industry, finance and accounting rank the lowest in Australia at just 42 per cent. This digital lag puts accounting teams at risk of losing business, as they are unable to meet customer demand for quick turn documents.
“If your accounting team still handles piles of paperwork, a really simple way you can improve your process is by adopting eSignatures. On average, when agreements are sent using DocuSign eSignature, up to 80 per cent of them are completed in less than a day and 44 per cent in less than 15 minutes.
“In today’s hybrid, on-the-go economy, time is one of our most valuable assets – and accounting teams can ensure they are meeting customers where they are by adopting digital first tools, like eSignature, to support them in getting there.”
Andy Mellor, Regional Vice President ANZ, Kofax
“With ongoing staff shortages, businesses around the country are currently burdened with extra work without extra time. Nobody can blame employees for occasional human oversight while under the pressure pump. However, there are tools such as robotic process automation (RPA) that can alleviate some of the workloads, whilst simultaneously improving security and accuracy.
“Moving your business to e-invoicing sees a range of benefits for accounting, where accuracy is increased by eliminating data-entry errors as the software will validate the data. Security is also heightened through e-invoicing platforms, as RPA can circumvent suspicious emails and phishing scams.
“Data provides a competitive edge, so e-invoicing allows a business to gain real-time access to information for better-informed business decisions. It also allows easy access to line-level data, enhancing financial decisions at a more granular level. Automation also allows businesses to handle higher volumes of work in less time, ultimately helping to drive profitable growth and gain valuable time back into your workers’ day.”
Varun Kumar, National Head of Technical Tax and Business Advisory, Moore Australia
“Depending on the size of your business and the volume of transactions, managing your own accounting systems may divert your attention away from your core business. Hiring experienced bookkeepers or accountants can create great efficiencies and cost savings whilst giving you access to expert knowledge.
“Good record-keeping processes throughout the year easily address issues during tax time. Most cloud accounting software allows you to upload invoices/ receipts, making managing it easier easily.
“Cash flow is king for any business, and if you aren’t regularly monitoring your cash flows, you are bound to land up in a bit of a problem. Most people will look at the profit and loss and measure a business’ success (which indicates the profitability of a business), but if cash isn’t coming through the door and you are struggling to pay the bills, you will feel the pinch.”
Michael Judge, Head of Australia and New Zealand, OFX
“One of the biggest risks to global business performance, and ultimately profit and loss, is reactive foreign exchange (FX) planning. Due to competing priorities, FX planning is often overlooked, leaving companies at the mercy of on-the-day rates. For global businesses, FX is just as important a business essential as tax.
“We encourage businesses to:
- Consider a simple hedging strategy to plan costs – being unprepared for fluctuations in the dollar could mean paying additional thousands. Understanding the tools available, such as Forward Contracts, can help you stay within budget.
- Take advantage of free FX resources – from rate alerts to daily and monthly currency updates and guides; there is a plethora of tools at your fingertips to help you stay ahead.
- Get specialist FX support – Monitoring currency movements can help minimise financial risks. If you are time- or resource-poor, FX specialists can help monitor your FX rate fluctuations.”
Claudia Pirko, Regional Vice President Account Management Organisation, BlackLine
“Cloud-based continuous accounting software provides an affordable answer and a way forward for businesses that want to ensure they’re making informed, intelligent choices and managing their overall accounting.
“The term ‘continuous accounting’ refers to a methodology for managing the accounting process by distributing workloads evenly across the accounting cycle, rather than having finance teams complete the lion’s share of it at a month or period end. It centres around three principles: the automation of repetitive processes, eliminating bottlenecks at the end of the period, and creating a culture of continuous improvement.
“Continuous accounting platforms allow businesses to process transactions and update their accounts in real-time. That means they’re able to obtain a detailed, accurate picture of where the enterprise is at – right now, not months earlier when the books were last balanced and the accounts closed off.
“Being able to extract up-to-the-minute insights from those up-to-date accounts means businesses are better equipped to make well-founded decisions, even when conditions are volatile and circumstances changing fast.”
Chris Foster, Associate Director in Accounting, BlueRock
“It’s all about visibility – if you don’t know your numbers or what they are saying, you might as well shut the doors tomorrow.
“Some quick wins for SME business owners to take back control include:
- Always start the new Financial Year with a 12 – 24 month forecast budget
- Once this forecast is set, implement a strong goal-setting framework to achieve both Financial and Non-Financial outcomes for your business and personal life
- Innovate your accounting software to ensure it is providing you with succinct, accurate, and real-time data to track if you are achieving your goals
- Seek out to understand the information presented and what it actually means – you might be thinking about it all wrong!
- You should regularly review this data with your Accountant/Business Adviser (e.g. Monthly) to avoid making the same mistakes.”
Sharon Crombie, CEO & Founder, MicroChilli
“A quick win for business owners is separating their personal and business finances, by creating a separate bank account for the company, and keeping track of their receipts, ensuring there’s a clear distinction between work and personal expenses.
“Another is taking the time to understand the difference between revenue and profit. I find business owners tend to focus on revenue rather than the profit that is derived from it, which is the true indicator of how they’re actually performing.
“I highly recommend committing to managing the company’s books throughout the year, rather than solely at tax time. It not only saves business owners a lot of stress and money, putting time aside to update the company’s forecast (I recommend doing this weekly!) allows them to see how the business is tracking in real time, identify potential cash flow issues, and make informed decisions when it comes to investing in things like employees and inventory.”
Jennifer Richardson, Founder and Sole director, 123 Financial Group
“Knowledge is power.
“Many business owners know more about what is happening in the Kardashian world than what is happening inside their own business.
“Real time accounting – knowing what is happening as it happens allows you to make informed timely decisions. Listen to what those numbers are trying to tell you rather than assume what your business is achieving. Keep in touch with your accountant so that you can put changes in place quickly to capitalise on the positives or make changes if things are not working. Your accountant should be your accountability partner.
“Setting an annual business plan with your 90 day target is the key to having a path to meet your business goals and will set up accountability targets to keep you on track.
“Don’t use cheap accounting software – good software will make it easier for you to keep up to date and give you all the financial information you need to have at your fingertips.
“Many business owners allow their customers to use them as interest free lenders. Follow up slow payers to keep the cash flowing in the business. Cashflow really is the queen of the business world.
“Don’t decrease prices when things get tough in the hope of increasing the number of customers – shrinking margins will only increase financial pressure.
“And look at your business from outside the box – an impartial view will give you so much more clarity. Be prepared to say no to a customer or client if what they want doesn’t suit you and the direction you have for your business.”
Discover Let’s Talk Business Topics
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.