Fri 22 Jan 2016 | By:

5 Accounting Mistakes Every California Entrepreneur Should Avoid

Accounting Mistakes to Avoid

Accounting and bookkeeping are essential parts of your daily business operations. It’s the only way that you can keep track of your in-goings and outgoings, allowing you to create realistic and factual financial forecasts and goals.

Without having an efficient accounting management system in place, you’d be totally lost and blind.

Starting a business in California is tough, the state is one of the most industrialized and progressive states in the US, and even one of the top places in the world with the largest economies.

Aside from having the best business plan to start your California small business, you need to prepare an organized and effective accounting routine – it’s your only chance to survive in the California business arena.

Whether you’re a novice or an expert in accounting, it doesn’t really matter – mistakes are unavoidable. Sometimes they’re just minor, insignificant and easy to correct; however, there are also cases where they can be very serious and detrimental to your business.

You can hire an accountant in California to do the job for you, but this may entail additional cost – which is not practical if you’re still starting out. Another option would be to use an accounting software, and this is pretty helpful because they’re fairly affordable and efficient; but at the end of the day, it’s still your responsibility to review your accounting records.

In this article, we’re going to discuss the 5 most common accounting mistakes that every California entrepreneur should avoid.


1) Bookkeeping Is Not Taken Seriously

This is the worst accounting mistake that a California entrepreneur can commit. Regardless the size of your business, small or big, you should always take accounting seriously. By doing so, you’ll be able to create a precise and factual view of your company’s health, allowing you to determine your business’s performance in a given time period.

Remember that the secret to successful accounting is keeping everything, no matter how small, written and well-documented. From small to big transactions or expenses, it’s important that you jot them down and organize them.

You also need to appropriately group different kinds of assets and liabilities, regularly check books and accounts and build an accounting management system – see if it works well with your business – these are the things that you need to do to keep your business financially secured.


2) No Clear Budget

Having a clear budget for every project you do is essential if you’re going to set your finances right. If you don’t set a budget at the beginning, you won’t be able to determine how much a project will really cost. While you can create a rough estimate, this will mainly depend on your budget. Without the latter, you’ll end up overspending.

When your company overspends, there’s a possibility that you’ll have to spend limited funds, which in turn can be difficult because there’s no return on investment. As your business grows, you’ll be able to know how much it needs to continue its operations. During this time, it will be fairly easy to set a specific budget for large projects, which can lead to success but not be wasteful.


3) Books and Bank Accounts Don’t Coincide

One of the gravest mistakes in accounting is when books and bank accounts don’t coincide, and the reason? Business owners fail to reconcile both regularly. Reconciling is a process where you check the balance recorded on your books and see if it matches the actual balance in your bank accounts.

It’s easy to keep track of large business expenses, but small ones are often forgotten and left unrecorded. However, the small expenses will most likely build up and create large expenses and by then, it will be difficult to trace where you spent all your business’s money.

Entrepreneurs should always make it a point to reconcile their books and bank accounts, efficiently recording every bit of a transaction. By doing so, you’ll be able to track your business’s financial situation.


4) Believing That Profit Is Synonymous With Cash Flow

You were able to come up with a business deal for a specific company, doing a project which will be completed in 5 months. The deal was closed at $100,000, but it will only take your California business $60,000 to fund it; so without completing or achieving anything, you immediately book a $40,000 profit in your records.

This is a huge mistake that you must avoid. You need to consider that 5 months will not always be 5 months. What if certain problems arise as the project is being built and the 5 months allotted time extends? How will you finance for the delay?

As an entrepreneur myself, I understand that we get very excited when we close a deal and we want to record every deal as income. However, assuming that profits are synonymous with cash flow is a wrong notion that can lead to negative outcomes for your business. You should correct this notion of profits as cash flow as early as now.


5) Failure To Record Small Transactions

As I mentioned before, it’s easy to keep track of large transactions and expenses, but difficult to record small business transactions. It is easy to assume that small expenses are just petty and unimportant; however, if you want to succeed in business, you need to consider every transaction as major.

For instance, in the retail industry, where most transactions are cash-based, you need to keep a record of every small transaction, even postal service, no matter how unimportant it is.

Poor accounting practices, overtime, can affect the fiscal health of your California small business. Repeating the same accounting mistakes can lead to insolvency, a thing that you don’t want to happen. Before everything gets out of hand, you need to reassess and determine what you’re doing wrong.

It would also be best if you get all the help you can. Instead of doing all your accounting in-house, use a small business accounting software or consult a California accountant. And although you’ll be using aid, you need to closely monitor and keep track of your accounting progress – not solely rely on the help you get.

By doing so, you’re ensuring the growth and increasing the chances of success for your California small business.

About Ryan James

Half hardworking hermit, half avid adventurer, Ryan founded Startup Savant to simplify entrepreneurship and pay it forward by donating a portion of all revenue to support children's education via