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  • What Money Mistakes are Robbing You Blind? Three Simple Steps to Prevention

  • Money mistakes happen more often than many businesses might expect. The causes are varied: human error, being overcharged or double billed, honest mistakes, or outright theft. These errors can cost your business substantially over time. So what’s a business to do? Let’s look at the most common mistakes your business might make and how to overcome them.

    COMMON MONEY MISTAKES

    Human error –No one is perfect, and in our constant state of distraction it is super easy to make a mistake. Examples could be digits accidentally inverted when inputting an item into your POS, a discount applied incorrectly, a credit or refund issued to the incorrect customer or item…Thanks to automation, human error is not as common as it once was, but it still easily occurs.

    Being over-charged or double billed – these are specific types of human error. If a company is unscrupulous, it is possible that this could be an unethical way of artificially bumping up their profit – at your expense. Examples could be your supplier charged you for a different size than you received, or perhaps you paid for something with a personal credit card then asked the vendor to reverse the charge and used a company card – but both charges were applied.  

    An honest mistake is when you (or an employee, vendor, or customer) does something wrong and isn’t aware of it. How many times have you thought you have paid a bill, then were hit with a hefty late charge because you paid a different bill (for example, county tax instead of city tax, or cable bill instead of phone bill). Another common example is over-promising and under-delivering on the value of a product or service (spend XX on this, save XXX on that as a result).

    The last cause of your books not balancing is one we don’t like to consider: outright theft. You hope everyone you come into contact with will be honest and support your endeavors but unfortunately, this is not always true. You have to be both trusting and vigilant. Catching this early will minimize the impact to your cash flow. 

    SINCE MISTAKES ARE INEVITABLE, WHAT CAN YOU DO?  

    The path to quickly correcting money mistakes lies in monitoring all of your accounts. Don’t just glance at the bank balance and move on. If you have 3 similar projects during the year and look at a receipt during tax season, will you recall exactly which project that expense or income is tied to?

    To ensure accuracy, accounts must be reconciled. Reconciliation of the accounts is a simple process in which the actual bank balance and the amount in your records match. If you are of a certain age, you remember having to reconcile your checkbook every month. Below are the steps to reconciliation. It is a simple process, and having good records will help you find any mistakes and take steps to fix them. 

    In the world of accounting and finance, transactions refer to any movement of money into or out of the business. It doesn’t matter what category it falls into – operating expenses, COGS, sales to customers, an infusion of cash from a loan – all of these are types of transactions. Banks, credit card companies, and merchant account services (Pay Pal, Square, etc.) send out monthly statements that show all the transactions that went through their platform during the previous billing cycle.

    Your books are reconciled when the difference between the official source documentation and the amount in the bank match with $0.00 difference. Therefore, you can only accurately reconcile your books if all the transactions have been recorded. 

    STEPS TO SUCCESS

    1. Keep your receipts and invoices so that you will have a record of where your money came from or went. You need to keep a record of when payments were made or income received. With the number of expenses and purchases made on a daily or even weekly basis, by the time the monthly statement comes from the bank you will not remember every detail of what payments were for. Best practice is to scan the receipt into your accounting software so that it is attached to your records there. If there is an invoice or bill, make sure that payments in or out are matched to those correctly.

    2. Go through each account and match the source record (bank, credit card statements, etc.) with the transactions in your books. If the balance is zero, you are done.

    3. If the balance is not matching, you employ your detective skills. Did you accidentally mark something as income that was an expense? Did you forget to notate a late fee or interest earned? Did you bill or credit the wrong vendor or customer? These errors are much easier to locate when you reconcile your accounts frequently, simply because you know exactly when the accounts were last correct and therefore know to limit your search for the problem from the date of last reconciliation through the current date.

    The monthly statements should be reconciled monthly. That sounds redundant, but for time management purposes, I find it best to select one day after they have all arrived for that time period and doing it in one block of time. Even if your business doesn’t have many transactions, the accounts should be reconciled at a minimum of quarterly.

    IS IT TIME TO HIRE A PROFESSIONAL?

    Reconciling your books is a simple process. There are times when it will take a bit of effort to find a mistake so simple doesn’t ALWAYS mean easy. You absolutely can do this on your own – it isn’t rocket science; it just takes time and experience.

    Everyone understands the importance of staying on top of their finances yet it inevitably falls to the bottom of the priority list. Outsourcing your bookkeeping will take ensure the job gets done accurately and on time. How reassuring it is to have someone constantly monitoring for mistakes, keeping clear, accurate, and accessible records, making sure invoices are paid on time (those you owe AND those your customers owe YOU) and helping you develop and implement processes to keep more profits in your business.