5. Poor treatment of cash withdrawals
It’s cool, you’re an entrepreneur. You’re your own boss. You’ve earned your stripes and we shouldn’t tell you how to pay yourself. All we’re saying is that don’t ignore whatever amounts of money you take from your business for personal use.
Some businesses are one and the same as their owners. So, they never take it serious to separate their personal spending from business spending. If this is how you want to live your life you go ahead. But don’t forget to enter records on cash withdrawals two times, as per the accrual basis we discusses in number 1.
6. Poor analysis of financial statements
We’ve covered before that the 3 main financial statements are to, individually, reveal to you how much working capital you have, how much profit you make and how rich you and your business actually are. You can see you’ll have information on sustenance of business activity, your income and collateral for taking loans.
But don’t fall into the trap of analyzing each statement in isolation. What is recorded in one affects the other. For instance, don’t mistake a good cash flow reading for profits or fail to see how loans (statement of financial position) affect your expenses reading (income statement).
7. Not incorporating software in accounting
If you simply rely on jotting entries down you are bound to make one of the typical accounting errors. You can’t avoid human mistakes. Even if you do the 3 statements right you may be entering mistakes from your journal and ledger documents that you compile information from.
READ: 12 MISTAKES THIS DUMB CEO MADE IN THE FIRST YEAR OF BUSINESS
There are many accounting software packages to use in Kenya such as quick books and wingu box. These are either paid for or operate through a ‘freemium’ model. You can still use free ones like MS Excel and Google Spreadsheets for accurate data.
8. Not being organized with documents
Don’t defend yourself with the ‘smart people are untidy’ line. Accounting is all about details. If you lose documentary evidence like receipts and invoices, you’ll have problems backing up transactions down the road (always remember accrual).
Organizing this kind of stuff will not trouble you at all. You can print copies, scan originals or be a totally cool person and take photos of them with your phone (let’s put your phone to good use).
