Avoid These Common Mistakes in Bookkeeping
Bookkeeping is always an important part of business, but for small businesses, it can be a make-or-break situation. Money management is most important when you’re starting out and don’t have as much money as you’d like. Every dollar counts and you have to make it count. Bookkeeping mistakes can cost you a lot of money and for small businesses, that can be a slow, but sure killer. Here are some of the more common bookkeeping mistakes people make and how you can avoid them.
1. Guesswork
Taxes are complicated, even moreso when you run a business. There are so many categories for business expenses and each has different deductions available. A lot of businesses make the mistake of guessing. While guesswork may not kill you right away, mistakes compound over time. Eventually, the mistakes you make will catch up, costing you money in fines, fees, and missed deductions you could have taken advantage of for savings.
The easiest way to avoid this mistake is to hire an experienced bookkeeper to manage this for you. Doing it yourself doesn’t save you any money unless you know what you’re doing. If you don’t know the ins and outs of bookkeeping, guessing is always going to be more costly in the long-run.
2. Putting It Off
2. Putting It OffBookkeeping is hardly anyone’s idea of a good time. It’s time consuming and requires an exhausting amount of your attention. It’s tempting to put off doing it, but that’s a worse trap. The longer you put off your bookkeeping, the more of it there will be to do. Additionally, the longer you put it off, the more likely you are to forget important details, such as what you receipts are for, and details for tax deductible expenses. You’ll also end up in a rush to get it done at the deadlines, leading to you missing many valuable tax deductions because you just didn’t have time to find them.
To avoid this mistake, you should be doing your bookkeeping regularly. At the very least, you should be doing it monthly and maybe even weekly. In some cases, it may even be a daily need, but if your business has that much of a need, you definitely need help. A bookkeeper can help ease the problems by taking that workload off of your shoulders. That way, you won’t be tempted to procrastinate.
3. Mixing Business and Personal Spending
You might think this is an easy one, but it’s still very common for people to make this mistake. You might forget your business credit card and think to yourself, “this small expense won’t matter.” It does, though. When you mix your business and personal spending, you remove a layer of legal protection in the case of IRS audits or lawsuits.
The solution to this is simply to never use personal funds for business expenses. Keep your business spending records completely separate from your personal records, and make sure there’s always at least a small amount of cash in a business checking account to avoid the temptation.
4. Improper Document Disposal
If I say, “Don’t throw away receipts,” you’ll nod your head and go “Oh, that’s obvious.” It seems obvious, but you’d be surprised how often this happens. You should keep every receipt your business uses, even if the IRS claims they don’t require you to do so. In truth, even the smallest receipts can help you out in case of an audit.
Throwing away receipts isn’t the only way people improperly dispose of documents. Shredding documents is sometimes necessary to protect sensitive information. Not properly destroying documents can lead to legal troubles and identity theft. Before destroying any documents, consult your financial advisor about whether or not that document may be needed in case of audit or lawsuit. When you do destroy documents, make sure you do so in a way that they can’t be recovered by a lot of tape and a little patience.
5. Neglecting Sales Tax
Sales tax is very easy to miss when managing finances. This bookkeeping mistake comes with some heavy consequences. Improperly recording and reporting sales tax data can lead to fines and penalties. If you enter the data wrong, you can end up with the wrong amount of sales tax due. This is a costly mistake.
To avoid this, you should coordinate with your bookkeeper regularly. Make sure you properly record all the data.
Easily Avoid These Bookkeeping Mistakes
There are just some of the many, many bookkeeping mistakes that a business can make. These kinds of mistakes are slow killers. They will rarely sink your business in the moment, but over time, they build up, crushing you under a weight of extra expenses and fees you wouldn’t need to pay otherwise. If you don’t know what you’re doing, these mistakes will run you into the ground.
Fortunately, you don’t have to worry about doing it yourself. There are plenty of bookkeepers ready and able to help you stay on top of your finances. Dragon Financial is one of those companies. We’re experts in accounting and more than happy to take care of your business needs. Just get in touch with us to find out how we can help!