What are the common bookkeeping mistakes made by small businesses?

Introduction

When compared to the overall appeal of owning and managing a small business, bookkeeping may appear to be an ordinary and tedious task. However, it is a necessary practice that must be carried out correctly in order to keep your business afloat and successful. To avoid the financial headaches that come with poor bookkeeping, you must first be aware of the traps that can trap you. This article will highlight the 8 most common bookkeeping mistakes made by small businesses, as well as provide an overview of bookkeeping for small businesses.

Bookkeeping for Small Businesses

Bookkeeping is the practice of keeping accurate records of all company transactions. Management and business professionals can benefit from bookkeeping in a variety of ways. It helps with accurate reporting of figures for compliance, tracking the company, and making decisions about overall company expansion. The first stage of accounting is bookkeeping.

8 most common bookkeeping mistakes made by small businesses

• Failure to Maintain a Record Backup

Cloud technology advancements over the years have made bookkeepers’ jobs relatively simple. The days of keeping hard copies of important records are long gone. Cloud hosting is a more secure and practical option these days.

However, even though cloud hosting does an excellent job of ensuring that your data is accessible 24 hours a day, there maybe a few issues you may encounter. To begin with, technical issues may prevent you from retrieving business reports, statements, and other critical documents stored in the cloud. Furthermore, you should never ignore cybersecurity risks. This is why you should keep a hard or digital backup of every record.

• Doing it on your own

Many small business owners, no matter how much they despise it, insist on handling their own books. Bringing in a competent bookkeeper to handle the books can be extremely beneficial because they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions.

• Not reconciling the books each month with the bank statement

Every month, one of the most important aspects of bookkeeping is reconciling the books and bank statements. Nonetheless, there are businesses that do not do this and others that make mistakes by not doing it correctly. This is why it is necessary to outsource bookkeeping activity.

• Failure to keep track of reimbursable expenses

Small business owners frequently pay for expenses out-of-pocket or with their own personal credit card, then fail to track these expenses. They then fail to submit the expenses for reimbursement to the company. As a result, the amount displayed as a balance differs from the actual one.

• Ignoring Sales Tax

One of the most costly small business bookkeeping mistakes is failing to account for and report sales tax. Failure to collect and report sales taxes can result in penalties and fines. If you enter data incorrectly, you may end up with an incorrect total sales amount and, as a result, the incorrect amount of sales taxes due. Work with your bookkeeper and accountant to ensure that your company is in compliance by paying the correct amount of sales tax on time.

• Improper Financial Transaction Record-Keeping

Improper receipt and record-keeping is a common small business bookkeeping error. Keeping accurate records of your financial transactions and saving your receipts will help you prepare for tax filing and potential IT Department audits. Saving your receipts in electronic format so you can easily retrieve them from your database is one of the small business bookkeeping tips you can use. It is the bookkeeper’s responsibility to record all financial transactions accurately and organize receipts. Keeping accurate records can help you avoid overpayments and penalties in the future.

• Failure to Classify Employees Properly

Some small businesses hire both employees and independent contractors. If this is the case for you, be sure to classify them correctly. Making a mistake on this can result in incorrectly filed taxes and overpayments. That is why it is critical to always be aware of and clarify your employees’ employment status.

• Incorrect Income and Expense Categorization

If you delegate your bookkeeping to someone who is unfamiliar with formal bookkeeping practices, they may make this error. For example, a common error is classifying transfers as income when they are non-business transactions that have no impact on your profit and loss. To ensure that you see the correct amount of profit, you must accurately differentiate income from expenses and record them correctly. You can save money on taxes by applying the proper tax treatment to each income and expense category.

Wrapping Up

Yes, bookkeeping is one of, if not the, most important factors in the success of a business. However, many small business owners face financial difficulties as a result of avoidable bookkeeping errors. We hope that this article will help you avoid making such mistakes in maintaining bookkeeping for your business.