What Are Most Common Bookkeeping Mistakes for Small Business Owners?
If you are a small business owner, bookkeeping can seem like one of the necessary evils that you must face. However, it doesn’t have to be a tough chore. Avoiding common bookkeeping mistakes can help your business become successful and headed in the right direction. With that said, bookkeeping is actually your biggest secret weapon when it comes to growth and business management.
Besides, here are the most common bookkeeping mistakes you need to look out for:
Tax season is coming. And you are just now realizing that your records are a mess, so panic is settling in. In order to avoid bookkeeping mistakes, it’s crucial to save all receipts that are eligible as business expenses. You can file them in a physical place or, if your receipts are on electronic forms, maintain computer files containing them.
Additionally, if you ever get audited by the IRS or some other taxing authority, they will want proof to back up your tax forms, so you should always have them prepared.
We live in a society that heavily depends on technology where issues can suddenly occur. Therefore, a big chance that something could happen to your business data is always present, so you need to be ready.
Not Keeping Track of Your Financial Statements
Financial statements give a direct overview of your business’s financial performance. As a matter of fact, if you don’t keep track of them regularly (or you don’t keep track at all), you’re missing out on endless opportunities to generate revenue and avoid any possible financial disaster. Furthermore, those statements can help you:
- Stay on top of your cash
- Creating a budget
- Find ways to maximize your tax deductions
- Apply for a bank loan
- Learn how to save money
- Show future investors how your business is performing
Lack of Communication
You can hire someone to work on the books a couple of days a week, but at the end of the day, you, a business owner, make the big decision yourself.
The easiest things can be simply misunderstood, so make sure you keep notes of discussions you have with your partners/employees. Important to notice – always make sure that both sides have the same understanding of the processes you put in place.
Not Taking Full Advantage of Your Software
If you find yourself using software from a reputable firm with years of experience, you can rest sure that the system is there to help you operate efficiently within the law. It could save you a lot of your already precious time. Also, it could prevent costly mistakes that can easily happen.
Not to mention, you should always reach out to your software provider for support or any questions that you may have. And if you are lucky – they may even provide training to help you get up to speed with your requirements.
Keeping Personal and Business Accounts Together
It doesn’t matter where you work physically. Lots of people set up successful businesses from their garages or bedrooms. However, where you need to draw a line is between business and personal accounts. Moreover, claiming all the legitimate business expenses can help you be tax efficient.
You should never pay with your business card for your personal stuff as it can mix the two accounts and add confusion.
Forgetting About Sales Tax
For you as a business owner, it is very important that you collect sales taxes. Then report and pay them to the appropriate taxing authority. If you skip this, you may be subject to back taxes and penalties, and we want to avoid that.
If you sell anything on the internet, collecting sale taxes can be quite complicated. To avoid any complications, make sure you know what’s exactly expected of your business in the way of sales tax reporting and collection.
Not Saving Receipts for Smaller Purchases
They may not be a requirement by law, but receipts for small purchases can provide listings for the many tax deductions you aim to claim.
Keep an organized folder of such receipts, or even better, use some sort of accounting software to scan them. As previously mentioned, having the right app, you can even take pictures of your receipts and store them using a mobile phone. They can also help keep track of what you’re spending on a daily basis.
Having a Time-Frame
While well-organized bookkeeping is essential to the success of your business, it’s also possible to get carried away and spend too much time doing it. Always keep track of when your recordkeeping is taking your time away from doing the primary job of taking care of your business.
A good bookkeeper will know what and how to record it. But, most importantly, keep track of the accounting changes that affect a business on an everyday basis. This alone can save you so much time. Additionally, it gives you an opportunity to focus on growth and take your business to the next level.
If you find that common bookkeeping mistakes are too much of a hassle for you, consider hiring a professional bookkeeper to assist you and upgrade your bookkeeping system and turn that mundane task into your secret weapon for business management and success!