Most Common Bookkeeping Mistakes
Made by Small Businesses
By SaraLyn Greenwood
November, 2017
If you own your own business you’re probably the go-getter type. Doing it all in your business. But do you ever wonder if you’re wearing too many hats? Or maybe you just don’t know what’s what with bookkeeping and finances. There’s no shame in that! Numbers are not for everyone! If you’re trying to do everything on your own you might be making these mistakes when it comes to your bookkeeping.
Combining Personal and Business Finances.
One of the first things that should be done when starting a business is opening a business checking account. It is vital that personal and business finances are always kept separate. It doesn’t matter how big or small your company is. Things get messy when you have to try to remember what purchases were for business purposes and what was personal. You might miss some tax write-offs
Not Reconciling to Bank Statements Every Month.
Reconciling your bank statements every month is a fundamental part of understanding your financial situation. The sooner you find a mistake or identify an issue, the easier it is to fix. The longer you go in between reconciliations the more removed you are from your finances.
Not Saving Receipts.
Even the most careful business owner will sometimes lose a receipt or two. While it doesn’t seem like a big deal if an occasional receipt is missing, these expenses can add up to some big money, and at the same time you don’t want to have to answer to the IRS if you have claimed expenses and don’t have the proof to back it up. Having receipts makes bookkeeping duties much easier. And if you’re making a lot of purchases they are a way to make sure you are categorizing your expenses correctly.
Miscategorizing Expenses.
There are fairly standard categories when it comes to expenses and often they are put into the wrong categories. Doing this can cause inaccurate tracking if you are costing expenses to particular jobs or keeping track of any specific item. Accurately categorizing expenses and income ensures correct measurement of profitability.
Lack of Communication.
It is important to have strong communication between you and your bookkeeper. Hiring someone to take care of your finances is only effective if they are kept up to date on all financial transactions. Keep your bookkeeper involved in what is going on inside the business. This is how a bookkeeper is able to create complete and accurate financial statements.
Doing It Yourself.
Many business owners don’t put enough value on their own time. Having a competent bookkeeper handle your books can be very beneficial because they have they skills and experience to do the job quickly and efficiently, leaving you the time to concentrate on your business. As a business owner, your time is better spent on the business, not in the business.
Not Properly Classifying Employees.
Businesses often have a combination of employees, independent contractors, consultants, and freelancers. Sometimes it is difficult to determine who is on staff and who isn’t. There are different rules and regulations when it comes to filing taxes. Make sure you properly classify to avoid misfiling and overpaying, or short paying your taxes. A good place to research the differences and how to classify workers is www.irs.gov.
Always Going with the Cheapest Option.
Everybody likes to save money, but there comes a point when frugality can start to cost your business money. For the most part, the adage “you get what you pay for” is true. Spending a little extra to get an experienced, skilled bookkeeper rather than the cheapest option often ends up saving you money. Do your research and find someone compatible with you and your business.