5 Most Common Bookkeeping Mistakes Made In Small Businesses
No business, whether you are the sole proprietor or a fortune 500 company, can escape bookkeeping. It is not always easy to know what to write off and write down to keep expenses in check. But bookkeeping is the heart of any small business, which means even minor mistakes can be damaging.
There are at least five mistakes you will want to avoid if you are a small business. From classifying employees, not having copies of expenses, and to doing it all yourself, small businesses can struggle with finances. In reading on we will dive in deeper to these five mistakes that can ensnare you and help you to avoid them in the future.
What are the 5 most common mistakes in bookkeeping?
There are, no doubt, many hardships when starting up any business. The path to a successful small business is often paved with ups and downs, positives and negatives. Keeping good financial records will ensure that your small business has a steady financial future. Your bookkeeping should not be a distraction to growing your business your way.
In reading through the five mistakes listed below you can avoid, improve, and make changes where needed. If you avoid these mistakes, your small business will flow smoother to financial stability.
Mistake 1: Failing to properly classify your employees
Today, you may have independent contractors, consultants, and freelancers and it can sometimes be difficult to determine who is on staff. You will want to clarify this for each employee with all the proper forms. Misclassifying employees can have significant consequences, including tax penalties and lawsuits against your business.
Mistake 2: Not having paper copies
Going paperless can actually be a major liability, especially in the event of technical problems when an audit occurs. Taxing authorities will often want to see a paper trail. This includes documentation and a system of paper backups. Save all receipts and paper transactions in files to ensure safe keeping.
*(Apps can save your receipts of day-to-day operations, but it’s important to keep a legit backup of your finances for at least seven years.)
Mistake 3: Neglecting to save receipts
Many receipts under $75 provide backup documentation for many of the deductions you might claim. While the IRS may not want to see these or claim them, keeping them in a folder or box is necessary. Keeping all receipts pertaining to your business will help in the case of an audit.
Mistake 4: Mis-categorization
Most expense categories are fairly standard and straightforward. The main mistake many business owners make, when doing their own bookkeeping, is creating duplicate categories. Be sure to use general bookkeeping guidelines for standard categorizations and create as few categories as possible. A professional bookkeeper is recommended to help you clean up your books and make sure all categories are aligned.
Mistake 5: Trying to do it all yourself
Many businesses try to do all the bookkeeping themselves to save a bit of money, this is often a mistake. Professional bookkeepers have the required skills to do the job quickly and efficiently. They have the necessary expertise to locate subtle errors that might otherwise be missed. They are aware of tax changes that could affect your financial practices daily and could save you time and money.
In conclusion, if you are a small business owner and want to save money, avoiding these mistakes will be beneficial. If you have further questions on bookkeeping or are looking to improve your financial records contact Slifka Business Solutions LLC.
Credit: Gina Robertson
Proofing and Editing by: Tiffany Slifka