Today’s small businesses largely benefit from having technology like accounting software. It streamlines bookkeeping and accounting tasks for small businesses. However, it does not make companies impervious to errors and accounting mistakes. On the contrary, it might make things like improper categorizations of transactions more common. Still, these mistakes are small and easy to correct.

There are others, though, that are more serious. Poor accounting can distort the real picture of your business’s financial situation. If you have bad accounting practices, it may lead your company to insolvency. 

Here are some common accounting errors, and how they make it difficult to run a small business:

1. Failing to record business-related transactions

From petty cash purchases to large payments, you have to note and categorize every transaction properly. Taking accounting seriously will give you an accurate picture of your company’s funds, and lets you see your performance over time. It will help you make better forecasts and will let you justify the need for certain capital expenditures.

Establish a detailed bookkeeping and accounting system that lets you categorize your assets and liabilities accurately, and allows you to perform monthly checks on your accounts. It is the first step in keeping your business organized and financially stable.

2. Putting off reconciling your accounts

Reconciling is the process of verifying if your account balance is accurate and matches the balance in your bank account. Small expenses and operating costs can add up. When left unrecorded, you might not be able to remember why you are left with a deficit in your ledger. 

For small businesses, this should be done on a monthly basis. Reconciling accounts ensures that all transactions and expenses are tracked. As your business grows, you will find it easy to stay on top of your finances if you establish this routine early on.

3. Not allocating a budget for projects

Do not get into a project without knowing exactly how much it would cost. This is an easy way to end up with an inflated bill; you are more likely to spend more than you intend to if you don’t set clear limits before the project starts.

Not setting a budget would undo any good practices you set in numbers one and two; if you don’t know how much you are willing to spend, you will likely forget to record all the transactions you need to complete a project.

4. Not being strategic with profits on projects

If you close a long-term deal, that usually means you are getting a hefty sum at the start of the project. That can make it seem like your company has plenty of cash; however, don’t consider profits as liquid funds, especially if you haven’t delivered the complete product yet. 

You have to account for delays or increases in cost. Your $20,000 project might end up costing twice as much as planned; if you received a $50,000 advance and allocated the $30,000 for cash flow, you might find yourself in a tough spot in the middle of the project.

5. Not specifying employees and contractors

If your business has employees, you have to get specific on whether they are part of the company or if you are hiring them as outsourced personnel. You would have to know the difference between contractors and employees, and the accounting consequences of hiring either type of worker.


Poor bookkeeping and accounting will make it hard for your business to grow. As your business becomes more established, you need to set standards for record-keeping and reporting. That makes it easy for banks, other businesses, and clients to trust you and your company.

Another mistake small businesses make is doing all of their accounting in-house. Outsourced accounting services can help you save money and see errors that you wouldn’t spot on your own. 

Hire a trusted accounting company like ours at A4E. We help SaaS and service-based companies with business growth services in Boston. Get in touch with us to learn more.