By Analytix Editorial Team
Poor financial health is often a major contributor to the failure of many small businesses. Financial health is directly linked to efficient and accurate accounting. Particularly for small businesses, where resources and budgets are tightly rationed, automation often proves to be the best way to ensure efficient accounting and subsequently timely, updated financial reports.
Automation reduces dependency on trained and skilled manpower. Therefore, over time, automation can also impact a company’s bottom line. Following are 10 mistakes that can be avoided with the judicious use of automation.
1. Not tracking expenses diligently
It is easy to forget about recording an expense once a transaction is complete. Automation can help resolve this by ensuring all expenses are tracked. This strategy also applies to reimbursements, especially when small business owners may be covering expenses from their own funds without applying for reimbursements from the company.
2. Doing it all yourself
Most small businesses do not hire a trained bookkeeper for fear of incurring higher costs. Automation solutions can assist in effectively ensuring expenses are tracked and books updated.
3. Delaying account reconciliation
Account reconciliation is a critical step in the bookkeeping process. For business owners performing this function themselves, it is often relegated as a task to complete later. However, this opens the door for small errors to snowball into larger accounting mistakes. Automation can reconcile business books with bank and card accounts on a regular basis, thus highlighting discrepancies that may arise.
4. Tracking small ‘incidental’ purchases
Oftentimes, expenses which are smaller than those stipulated by the IRS guidelines remain unrecorded by business owners. However, these small expenses accumulate and could be beneficial to track for tax purposes. Even small expenses add up to help you qualify for effective tax deductions.
5. Reduced human interaction translates to reduced chance of fraud
Bookkeepers have the opportunity to commit fraud, especially embezzlement. For a small business, such losses can have huge impacts on profitability, as well as morale. Apart from implementing failsafe controls, automation also reduces dependency on human beings, therefore reducing opportunities for fraud.
6. Ensuring back up
Automation helps create updated reports and, more importantly, accounts that are tracked and contain recorded data. As opposed to manual bookkeeping, automation can generate reliable trails and ensure accurate financial data.
7. Misclassification of employees
Once configured, the chances of misclassification of an employee are greatly reduced in automated systems. A small business could have a number of different resources, including part time employees or those working remotely. The IRS has various rule classifications for each employee category when it comes to calculating tax. An automated system leads to reduced errors and more accurate tax filings, regardless of the number of employees in the business.
8. Not making the appropriate deductions
Only a trained accounting professional knows for certain which tax deductions to take. Forgetting to deduct sales tax from a sale is a common error. For business taxation purposes, this error can prove costly because it displays a higher amount of sales.
9. Creating wrong categories
Bookkeeping is all about creating categories and ensuring the right figures are assigned to the right categories. Automated solutions can help by creating the correct categories and ensuring these are updated accurately. Updating the wrong category can result in larger issues at fiscal year-end.
10. Stronger management of petty cash
Most businesses maintain a petty cash reserve for minor expenses. However, it is easy to lose track of the money withdrawn from this reserve. With automated bookkeeping, expense tracking can ensure updated records of withdrawn funds and balance the remaining reserves.
Consider automation for your business to help ensure the integrity of your accounting.
The Company that CPAs Recommend
Analytix Solutions is a professional full-service business support solutions provider. The company offers comprehensive and scalable accounting and bookkeeping services while leveraging its expertise, experience, and state-of-the-art infrastructure. It offers multiple services in diverse packages for companies that are seeking a trustworthy and professional partner to give their business a head start.