10 Bookkeeping Mistakes Small Businesses Must Avoid

Small businesses are the backbone of any local economy. However, they have to work hard for their survival. The most common problem for small businesses is finances. It is essential the businesses not only perform well but also ensure their books are adequately kept too. 

If there are mistakes in bookkeeping, it can lead to financial losses in the short and long run. We shall look into the common bookkeeping mistakes committed by small businesses and some simple tips to avoid them from taking place altogether. 

• Hire an Experienced Bookkeeper

One of the common mistakes small businesses make is when the owner tries to keep books. Bookkeeping is a very tough and professional job, and it should be left to the experts. Spending a little more on hiring an experienced bookkeeper will save your business a lot of hassle and money over the length of the fiscal year. 

Concentrate on your business operations rather than its accounting needs. It is also vital that you hire someone experienced in the field. A rookie bookkeeper may also make mistakes that can have ill effects on your business.  

• Keep Track of all Expenses

A business has expenses of all kinds. From buying office supplies such as ball pens and printing papers to acquiring large ticket items like computers, all are different kinds of expenses. All of them are equally important, and you need to keep their record. 

Even if you buy a couple of sodas for the clients while meeting them for official purposes, it should be charged to the business. Keeping track of all your transactions can save hundreds if not thousands of dollars every year. 

• Mixing Personal and Business Funds

A lot of small business owners make the mistake of mixing their personal and business finances. They often spend more than their fair share of earnings, and the business finances are out of control. Such mix-ups can lead to severe financial trouble for minor business concerns.

Never have the same account for personal and business expenses. Such actions almost always lead either the company or the business owner to lose money regularly. 

• Treatment of Expenses

Every expense has its specific treatment. Not recording expenses properly can lead to severe business losses. For example, if you purchase toiletries consumed within the month, it’s an ordinary expense. 

However, if you buy your office manager a new laptop, that is not a simple expense. It will be treated as an addition to a business asset. This asset will be depreciated over the next few years based on its life cycle. 

• Employee Classification

Small businesses have all kinds of employees that may work full-time as well as part-time. There are also consultants contracted by the company but are not considered as employees. It is crucial, and all of them are classified correctly in the books of accounts. 

Any mistake in classification can cause inaccurate information and can lead to fines and penalties. Tax authorities usually come down hard on such errors since many companies misclassify their employees on purpose. 

Perks and bonuses given to the different kinds of employees may also have different tax implications, so they must be appropriately recorded. With accurate information, penalties and other issues can be avoided.

• The Sales Tax

Most businesses need to pay sales tax. Not collecting sales tax can lead to issues in the longer run. You must follow local laws and manage all sales tax accordingly. If you fail to do so, you may have to pay some of the sales tax company’s finances or your pocket. You can also receive penalties for not correctly filing sales tax by the authorities.

• Backups

You should have backup records for all of your transactions. While your accounting software is perfectly capable of keeping the record safe, you cannot entirely rely on soft copies. You can lose data on your hard disc if it goes corrupt. Also, we can altogether rely on the cloud for data safety. 

You should maintain physical records, printed on papers, and stored away in a safe place. Ideally, these records are kept at a remote location so that it’s still safe in case of fire and damage. It sounds a bit old-fashioned, but it works perfectly. 

• Reconciliations

You must always reconcile your bank accounts periodically. Minor issues are often found, which can be corrected with a simple investigation. However, if you are reconciling your books at the end of the year, you are likely to find issues that are hard to correct. Never leave it until the very last second to fix things.

• Consultations with a CPA

CPA highly skilled professionals all about taxes and finances. People do not want their services to save money. They also believe that a bookkeeper alone is the fix for all their problems. In reality, it’s not a bad idea to engage a CPA’s services now and again.  

They can advise you on bookkeeping and finance issues in general. Most bookkeepers are good at what they do, but not all of them will be at home with the latest changes in the tax laws. A CPA will be most handy for these purposes. It is a bit of an extra expense, but it is worthwhile. 

• Checks and Balances

Bookkeepers help maintain your books of accounts. Due to the very nature of their work, they’re well aware of most workings within the business. Ensure that you have checks and balances in place so that your bookkeeper cannot commit fraud. 

While most people are honest, there are some black sheep as well. If you trust anyone blindly, they can benefit from it. It is also essential that you have clear communication with your bookkeeper to avoid confusion and help the business run smoothly.

Conclusion

Even though some of the issues mentioned above may seem like small ones, they can accumulate and create significant problems for a company in the long run. So be sure to avoid these basic bookkeeping errors and keep your small business in good stead. 

Bookkeeping is a specialized job and should be taken very seriously. Issues with the books of accounts can lead to losses for the company. It can also lead to penalties from the tax authorities. Small businesses can avoid the short term and long term financial issues with the help of a proper bookkeeper.