Making accounting mistakes when running a business is unavoidable. When you’re busy running your company, it’s normal for tasks to get overlooked. Mismanaging your accounts can affect your business operations.
We asked our accountants for the five most common accounting mistakes they’ve noticed when dealing with clients, and what businesses can do to fix them.
Errors in Expense Tracking
Keeping good records is an extremely important part of accounting. If you don’t track all your business expenses properly, your taxable income will appear higher than it is. This can increase your tax liability. You also won’t be able to prove your expenses if the Federal Tax Authority (FTA) ever audits you.
How businesses can fix it:
- Keep all of your receipts: You should save a record of every single business transaction.
- Classify expenses: You should classify each business expense properly. This helps you get a clearer picture of your spending and helps you maintain accurate financial statements.
- Perform monthly reviews: You should set aside time each month to review your expenses.
This is an easy way to catch mistakes and find areas where you can save money.
Recording Personal & Business Expenses Together
This is a common mistake, especially for new entrepreneurs. Using the same bank account for both personal and business expenses can complicate your accounts. It makes it nearly impossible to understand your business’s finances and can also cause problems if you have to pay taxes.
How businesses can fix it:
- Open a separate business bank account: This is non-negotiable for business owners. You should also maintain a dedicated account and credit card for all your business transactions.
- Pay yourself a salary: Instead of dipping into business funds for personal use, pay yourself a consistent salary. This keeps a clear separation between your personal finances and your company’s money.
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Incorrectly Reconciling Your Accounts
If you don’t reconcile your bank statements with your accounting records regularly, you might miss unauthorized transactions or duplicate payments. Many businesses skip this step, but it’s the best way to catch errors and prevent fraud.
How businesses can fix it:
Reconcile your accounts every month: You should compare every transaction you’ve recorded in your books to your bank statement. This can help you catch discrepancies early.
Automate reconciliation: You should use accounting software like QuickBooks or Xero can automate a lot of this work for you, making the task faster.
Missing Tax Obligations
A 5% VAT was introduced in 2018, while a 9% CT on revenue over AED 375,000 was put into effect from 2023. Both existing and new businesses can struggle to understand how to incorporate tax obligations into their accounting practices.
Some business owners handle their own taxes to save money, but this often leads to expensive mistakes. If you’re not up to date on tax laws or make errors on your forms, the FTA can give you penalties and fines.
How businesses can fix it:
Keep yourself updated: Make sure to stay informed about all the changing tax laws in the UAE. You can even create a tax calendar with all your important deadlines, so you never miss a filing or payment.
Hire a professional: Working with an accounting firm in Dubai can save you a lot of time and money in the long run. They have the expertise to make sure you stay compliant.
Insufficiently Monitoring Cash Flow
Cash flow is the money that comes in and goes out of your business, and it is vital for your company to survive. Many business owners think that high sales mean their cash flow is healthy, but that’s not always the case. If money comes in too slowly, you could struggle to pay bills and payroll on time.
How businesses can fix it:
Improve your billing: You should send invoices right after you finish a job, and you should follow up with clients who are late on payments. You will have a healthier cash flow when you get paid faster.
Forecast your cash flow: You should look ahead a few months. Try to guess when money will come in and go out. This helps you plan for slow periods.
Hire A&A Associate to Manage Your Accounts
Don’t let these common accounting mistakes hold your business back. If you let A&A Associate manage your accounts, our team of experienced professionals will make sure that your records are organized, your expenses are tracked accurately, and your tax obligations are met. We also offer comprehensive bookkeeping services in Dubai and payroll services in Dubai to keep your finances in order.
