5 Common Financial Management Errors Every Entrepreneur Must Avoid

The growth of your business depends on how well you are able to handle the financial aspect of it. That being said, there are certain financial errors that could lead to the death of a business. A few of them are listed below.

Lack of basic accounting knowledge

Being an entrepreneur requires having strong business essentials and basic accounting knowledge. A lot of entrepreneurs, especially small business owners have resorted to accounting software to be able to handle their finances themselves. However, the software cannot be maximally optimized without the basic knowledge of accounting; that means you are not able to enter financial data correctly, causing you to run your business blindly without knowing where it truly stands.

Managing all your accounts by yourself

Having the basic knowledge in accounting doesn’t make you an accountant, therefore it is not ideal to manage your accounts all by yourself, especially as a small business owner. Running a small business with limited capital may make it seem difficult to hire an accountant, thereby going for an accounting software instead. Regardless, it is best to invest in the services of an accountant.

Taking a deeper look, an accountant will help you make certain decisions that if made yourself, could cost you your business. Some accounting software for instance Accounteer, allow you invite your team mates and an accountant. This way, you can all work together to oversee the affairs of your finances. In case there is an error in your accounts, an accountant detects it faster and gets it fixed.

Taking Bookkeeping with Levity

It is highly important to record every transaction that occurs in your business; from small to large transactions. Bookkeeping gives you an accurate picture of where your business stands; are you at a loss or making profit? It helps determine if your revenue covers your expenses, etc.

This involves categorizing your revenue, expenses, assets and liabilities correctly. Effective bookkeeping is the key to financial security.

Failure to Reconcile Books with Bank Accounts

Bank reconciliation is the process of checking if the cash in your bank account matches what’s in your business books. Over time, it is possible to forget to record some little expenses, by reconciling your books with your bank account, you are able to identify what is missing. Using an accounting software makes it ridiculously easy to reconcile your accounts as you get bank feeds directly from your bank. With this, you have everything in one place.

Reconciliation should be done frequently to make sure your accounts and books are in sync.

Mixing Business and Personal Finances

A common mistake entrepreneurs make, especially those new in business, is mixing both business and personal finances, which in the real sense are meant to be handled separately. By mixing them, it becomes difficult to know which is which. Gradually, your books become inaccurate thereby causing harm to your business.

To avoid this, set up a bank account solely for your business right before the commencement of operations. Also, important records and documentation should be done from day one.