Small mistakes can have huge consequences, as WH Smith’s recent shock shows.

An accounting error wiped roughly 42 per cent off the retailer’s market value, which serves as a harsh reminder that poor financial controls and sloppy bookkeeping can quickly turn into a corporate crisis.

Here’s what went wrong and practical steps you can take to avoid the same fate.

What went wrong at WH Smith?

WH Smith reported profits that were materially higher than the reality, and when the mistake came to light, investor confidence evaporated.

Markets had been pencilling in about £140 million in profit, while the company’s actual figure was nearer £110 million.

The £30 million shortfall appears to stem from revenue being recognised in the wrong year.

Income that belonged in the following accounting period was prematurely recorded in the year under review.

That timing error painted a rosier picture than was justified, and the market reacted accordingly.

This type of mistake isn’t unprecedented.

In 2014, Tesco made a costly mistake with supplier payments and overstated profits by around £326 million.

If FTSE 100-listed firms, both past and present, can fall foul of such errors, it underlines how easily accounting missteps can happen and why smaller businesses should not be complacent.

How to reduce the risk of accounting errors in your business

The best place to start is with professional support.

Many small businesses try to handle accounts in-house to save money and only discover problems when it’s too late.

Engaging qualified accountants gives you a layer of expertise that can spot pitfalls before they become material issues.

A robust audit, whether statutory or voluntary, is another strong defence.

In both the WH Smith and Tesco cases, more rigorous audit scrutiny may have identified the misstatements sooner.

For companies below the mandatory audit threshold, commissioning a voluntary audit can be a cost-effective way to get early assurance and peace of mind.

You should also seek to improve financial controls and literacy.

Business owners should understand the basics of revenue recognition and the timing of income and expenses.

That knowledge helps you ask the right questions of those preparing the accounts and to spot anomalies early.

Tightening internal procedures around approvals, reconciliations and cut-off testing makes it much harder for errors to slip through.

Remember, an audit is only useful if you act on its findings.

You should treat audit reports as practical checklists and use them to guide the future of your business.

Where auditors flag concerns, follow up with targeted remediation and, if necessary, bring in advisory support to make the changes stick.

Our accounting team works with business owners to maintain compliant accounts and equip them with greater financial knowledge.

No business is immune from errors, but good controls, timely audits and sound professional advice dramatically reduce the chance a single error will derail your company.

Protect your business from costly accounting slip-ups. Speak to our team today.