Bookkeeping is the pre-eminent task that small business owners face. Compared to large enterprises, small business owners possess fewer resources. This means that one person ends up wearing more than one hat of responsibilities. Common Bookkeeping Mistakes takes hours and hours of your time. The task might be boring, but it is an essential road for a successful business. An unsuccessful business is paved with unrecorded and poorly managed accounting services and common bookkeeping mistakes. Showing zero interest in fulfilling the basic requirements of accounting affects your business’s health badly.
Top 10 Common Bookkeeping Mistakes & How to Avoid Them
The recurring bookkeeping mistakes will put your business in jeopardy. However, by avoiding the most common top 10 mistakes in bookkeeping, you can save your time and money.
So, below are the top common Mistakes in Bookkeeping that small businesses must avoid for a flourishing and nourishing business.
- Carelessness when Bookkeeping
- Improper Categorization of Income and Expenses
- Not Securing Backups
- No Reconciliation
- Mishandling Sales Taxes
- Poor Internal and External Communication
- Fail to Properly Identify Employee
- Not Chasing Late Payments
- Not tracking Reimbursable expenses
- Bad Cash Management
Fortunately, these bookkeeping mistakes can be easily fixed as soon as you notice them. Let us delve a little deeper into these avoidable mistakes of bookkeeping.
Carelessness When Bookkeeping
Poor record keeping or the improper handling of records is the most common mistake that most business owners make. It is quite common to forget about insignificant expenses, receipts, and transactions. However, maintaining an accurate monthly record of finances is mandatory. The monthly record of every income and expense helps you in the audit by not only saving your precious time but also saving your hard-earned money from penalties and fines. It is the job of the bookkeeper to maintain an accurate and up-to-date record. Also, organizing them perfectly is the task of a bookkeeper.
Apart from this, the carelessness shown in bookkeeping will result in the below-mentioned costly bookkeeping mistakes:
- It will result in the poor business decision that hampers the growth of your business.
- You will end up hiring more employees, taking extra loans, and investing in extra equipment.
- The transactions are miscategorized, which results in another bookkeeping problem.
- It is harder to categorize the over-mid bookkeeping account.
Improper Categorization of Income and Expenses
The second most common mistake that business owners make is to delegate their financial tasks to someone who does not have the proper knowledge of formal bookkeeping. An incompetent person will mix up your personal and business expenses. Also, they might end up mixing your income and expense transactions. However, mixing up the transactions is the worst endeavor that a business faces. Mixing up of the two accounts creates a problem in reconciliation. Also, you need to verify every transaction other than personal transactions at the time of audit. Henceforth, the merger of two accounts is havoc for the business’s financial structure.
Not Securing Backups
Company data are precious. But what if you have not prepared yourself for the worst, like crashing the system or accidentally deleting a file? Henceforth, it is very important to create a backup of your company data. It prevents the loss of precious data from unforeseen issues. You can create the backup copy to an external hard drive or on the cloud.
The worst thing that the business owners do is not reconcile their accounts book with the recent bank statement. The bank reconciliation is a mandatory thing that must be performed every month to ensure the wholesome financial health of your business. The proper reconciliation helps in identifying the right source of your income, which helps in avoiding potential audit issues.
Mishandling Sales Taxes
Neglecting the sales tax comes with hefty consequences and will result in heavy fines and penalties. Also, if your bookkeeping entries are misleading, it will result in calculating the wrong sales tax, which will ultimately land you in trouble in the end. Moreover, as per records, small businesses often fail to deduct sales taxes from total sales, which comes as a surprise tax at the time of filing taxes.
Poor Internal and External Communication
For maintaining a healthy bookkeeping record, it is advisable to have strong and clear communication between the bookkeeper and the company’s employees. The bookkeeper must be aware of the company’s internal process. It helps the bookkeepers in tracking the financial statements. Also, open communication helps them manage the payroll, inventory, and budget in a much better manner.
Fail to Properly Identify Employee
Usually, the small businesses have both the employees and the independent contractors. Misclassification of the employees will put you in legal trouble as you end up paying the wrong taxes. Henceforth, it is very important to properly classify the employees and segregate them as per their categories.
Not Chasing Late Payments
Most of the business owners forgot to keep track of late payments. For a nourishing and successful business, it is important that you get paid on time for your services or products. However, sometimes, the customers pay you later. And often, these payments get untracked by the business owners. To overcome this
bookkeeping error, most bookkeeping applications offer a unique feature that reminds you of late or upcoming payments.
Not Tracking Reimbursable Expenses.
Often, small businesses pay from their pocket or from their credit card. However, they often fail to keep track of these expenses. Usually, these expenses are reimbursed. However, they fail to submit the expense for reimbursement. The failure of these reimbursements is not only a loss in money, but you also have to bear the loss of tax deductions. Henceforth, it is advised to keep track of these reimbursable expenses.
Bad Cash Management
Small businesses deal with a limited amount of cash. However, managing the cash involves a lot of factors, such as the amount receivable, loans, and more. Often, businesses fail to keep track of their finance. However, ignoring the cash flow will result in problems.
Also, apart from that, make sure that your customers are aware of your payment terms and conditions.
Related Page: Top 10 Accounting Software For Small Business
Say No to Book Keeping Mistakes With Us
Bookkeeping is the unavoidable crucial task that is necessary for maintaining good financial health for your business. By paying a little extra attention, businesses can easily overcome the common mistakes in bookkeeping. If you are ready to avail of bookkeeping services, we will help you. We assure you the fastest, most reliable, and most trustworthy bookkeeping services from experienced professionals. Our services are highly cost-effective and help in the growth of your business.