19 Oct The Most Costly Bookkeeping Mistakes Made by Small Businesses
Every business in existence, from the Mom & Pop Store all the way to the “Walmart-esque” conglomerate, uses bookkeeping on a daily basis. One may use notes written on napkins and backs of envelopes, while the other has a highly developed, multi-million dollar system in place, but ultimately, the end goal is the same. Tracking your business or personal income and expenses is key to know if you are successful.
Now that we know bookkeeping must get done, no matter how mundane it can be, we need to address the most common pitfalls that many businesses and individuals face. This list is full of things that are completely avoidable when a little bit of knowledge, skill and experience is employed.
- Relying Only on Yourself – You may be a business owner or a business professional, either way, that makes you a highly capable individual. Relying too much on yourself and spreading yourself too thin though can be costly. Bringing in a skilled and efficient bookkeeper ensures things are done the right way and frees you up to actually work on your business.
- Not Reconciling & Keeping Accurate Records – Are you familiar with account reconciliations? If you’re not, then your financial records may be in quite a bit of disarray. Reconciling monthly is essential to keep your books accurate throughout the year. Bookkeepers should undoubtedly be familiar with this duty.
- Miscategorization – With whatever bookkeeping system you use, you’ll have a chart of accounts with all kinds of categories ranging from liabilities, expenses, assets, equity accounts, and on and on. Getting your daily activities into the right categories can be confusing if you’re not familiar with what they really mean. It’s also vital to place them correctly, following generally accepted accounting principles.
- Neglecting to Track Expenses – Often, new businesses and owners aren’t familiar with how business expenses work and affect taxes. The lines between personal and business expenses can get very blurred. An experienced bookkeeper can help advise you whether or not that quick trip to the store should be assigned to the business.
- Tracking Employees Incorrectly – Small businesses regularly take advantage of freelancers and independent contractors. On the other hand, you may be ready to hire a new full-time employee. Determining how to pay these people and how to properly file with the state and IRS can get confusing. A bookkeeper with experience in payroll and filings can easily lead you through this process.
- Unfamiliarity with Sales Tax – The vast majority of businesses that sell goods or offer services will have to collect and pay the sales tax they collect to the state on a monthly or quarterly basis. Recording this tax at the correct rate and filing it is extremely important (I cannot under-emphasize that) to avoid some very costly fines and penalties.
- Not Having Reliable Backup Records – Everything recently seems to be moving to the “paperless office” where nobody will print anything and the clunky filing cabinet will go the way of the dinosaur. Unfortunately, computers do crash and the IRS always has the right to audit your business. Without that filing cabinet full of receipts and documents, it may be difficult to explain why certain expenses were assigned to the business and such. A competent bookkeeper will always keep your records safely and securely.
- Underestimating the “Small Stuff” – Small purchases here and there, a quick trip to the store to grab something simple, not keeping cash-on-hand records, not throwing a small receipt in to be filed. These add up in the long run and can really help or hurt. Doing the small things consistently, and having a bookkeeper who has the same mindset, is what will keep your records pinpoint accurate and set you up for success.