Learn About the Major SME Bookkeeping Mistakes and How To Avoid Them
There are many reasons why many SMEs in Singapore fail to take off as they had hoped. This is despite the fact that the government of the city-state of Singapore has put in place incredible measures to make it possible for most businesses to be successful. It means that the failure of such businesses are solely attributed to them, and one of the areas they usually fail in is bookkeeping. Poor financial management is a sure killer for any SME, and top vigilance in bookkeeping must never be ignored. With that said, here is a look at some of the major SME bookkeeping mistakes which must be avoided for the financial and overall success of the business-:
Mixing personal finances with business finances
For a start, you should always have different accounts for personal and business expenses. It is vital for every entrepreneur to have separate accounts so that finances don’t overlap or they end up using the wrong funds for the wrong purposes. This will cause nothing but confusion on the business finances, and you may end up spending business money on personal items, thus limiting the financial muscles of the business.
Secondly, it is highly recommended for the SME to have a clear strategy of managing their finances. In most cases, this is usually done by hiring an accountant. In this manner, business accounts and finances will be effectively isolated from the owner’s account, and the likelihood of them dipping into the business accounts will be greatly reduced. Such an arrangement will also make it easy to know the cash flow into and out of the business and have a clear understanding of how the business is doing financially.
Inconsistent methods of accounting
Using mismatched methods of accounting is one of the other common SME bookkeeping mistakes that you have to watch out for if you want to avoid accounting problems for your business. Most of the times, business accounting is usually done either through Accrual or Cash methods. In cash-based accounting, the actual flow of cash in and out of the business is what is used to determine the financial position of the business. With such, the inventory is not considered. With Accrual accounting, however, both income and expenses are taken into account, irrespective of whether the cash has been directed to other avenues or parties.
Many small businesses in Singapore like to use Cash accounting method, but sometimes, it makes sense to move over to Accrual as the business expands. Accrual accounting method allows for more clarity into the exact position of the business, and it makes it possible to evaluate whether or not the business is growing. Irrespective of whichever accounting method the company chooses, it is imperative that you stick to it and not try to mismatch the methods. That may cause a great a deal of confusion and the company’s accounts may be misrepresented.
Ignoring minor purchases
If you have been ignoring minor purchases in your business, then you have been making one of the common but dangerous SME bookkeeping mistakes. Things like petty cash and minor claims may seem insignificant, but if you don’t track them, they will always add up and the deficit they create in the books will always be noticeable. Worse still, some of these minor claims are never recorded by small businesses, and this is how people usually end up with huge unexplainable deficits in their books. To avoid such, you need to keep a regular log of every petty expense incurred by the business and all the relevant receipts must also be kept for proper bookkeeping.
Lack of expertise
Most SMEs are managed by sole proprietors or with a small team where one person is allowed to wear many hats as far as roles are concerned. It is thus common to find that someone with limited expertise or experience is tasked with the role of taking care of the business books. Very costly mistakes and omissions are bound to happen, and this is usually one of the worst SME bookkeeping mistakes in Singapore. In as much as the business may be constrained for funds to hire an experienced in-house bookkeeper, it is advisable that they have their books kept by professional. A good approach is to outsource such services to a reputable firm. Yes, it will cost money, but it will also save you a lot of money in the long run.
Watching out for the above mistakes will not just make you be on top of your business finances, but also you will avoid problems that may emanate when filing for taxes, and which may come with very heavy penalties.