5 Common Book-keeping Mistakes Entrepreneurs Make
Losing sleep over your company’s financial health? Making time for effective book-keeping can give you a clear picture of the company and lead you in the right direction.
For a new venture, keeping track of financial transactions is as important as focusing on your idea or your customer. However, most entrepreneurs in Nepal are often too focused on the ‘running’ aspect of the business and overlook their book keeping. Here we present 5 most common book-keeping blunders that every entrepreneurial venture — regardless of their size and nature— MUST avoid.
1. Procrastinating on transactional records
Recording transactions into account books every now and then is a tedious job no doubt. Deferring it only make things worse, and may also add financial risk. Not only will you find it difficult to remember all petty transactions, but the authorities may also penalize you for not keeping a proper record of your work.
2. Not using banking channels
New ventures often shun banking channels for receipts and payments because either the amount involved is very small, or it’s gratuitously inconvenient. However, using banking channels, even if it is not a mandatory requirement is desirable because it provides a reference for your transactions and you can trace them back in the event of a dispute or when you are finalizing your annual accounts.
3. Non-availability of supporting documents
Theoretically, and practically too, you can’t have any financial transaction without having a reason to do so. And in business, such reasons should be documented. For example, if you are paying rent to your landlord, you must have a rent agreement. Plus, you need to set a rule on who creates such documents, who approves it, and who ensures that work is performed accordingly. Design and ensure an internal control system on activities to have a ‘check and balance’ mechanism. Also, ensure that a system and not a person runs your business.
4. Mixing personal and business transactions
The famous adage ‘You work on your business, not in it’ applies in the realm of book-keeping as well. Your business is a separate entity from you, even if you own and run it. So keep your personal finances separate from your business transactions. Record what you give to and take from your company.
5. Analysis of accounting and financial data
Most new ventures keep books and prepare financials because they are statutory requirements. They never go back to the books once audited. However, this accounting data can provide valuable understanding of the financial health of your business, how much you have put into the business till date, what is the return on your investment etc. So, don’t just prepare financials, review them.