Whether you are self-employed, run a small business or have a multi-million business operating nationwide — finances are key to understanding the health & sustainability of a business, and bookkeeping is one of the best financial tools to do so. However, many business owners fail at their business because they don’t have their finances in order and make common bookkeeping mistakes.
That being said, you don’t have to be an expert in financial literacy. Learn about these common bookkeeping mistakes to save yourself from unnecessary headaches and penalties.
1. Not Saving the $75 Receipts
Just because a receipt is small, it doesn’t mean that you should not consider keeping it. Even though the IRS doesn’t count for $75 or smaller receipts, it should be a habit to keep these safe. If you think that keeping the hard copies of these receipts is just too much work, then you can simply use apps that allow you to take a picture and save it.
However, the best thing to do is save the paper copies of the receipt for any case. You would be surprised how much effort you would save your bookkeeper in the future.
2. Hiring An Amateur Bookkeeper
You may think it is more convenient for you to hire a bookkeeper ready to charge you less. Think again. You get what you pay for. Surely you will save a couple of bucks by paying less for a bookkeeper, but you might lose a lot more money if they don’t do their job right.
Remember that finances are your business’s lifeline and the only thing that you cannot afford to go wrong with. All it takes is for one mistake, and you might end up getting sued or have the IRS knocking at your door because the bookkeeper didn’t pay your taxes on time.
3. Not Distinguishing The Role of Employees
The world of business is changing so much with all these independent contractors and freelancers going on around. You should be able to tell apart the role that each employee has in your business and whether someone is working for you or not. Save yourself tax penalties and unnecessary lawsuits by merely asking your bookkeeper to keep precise track of who is on your payroll and who isn’t.
4. Lack Of Communication
Lack of communication is a classic mistake when it comes to business. Most young business owners tend to allow their arrogance to get the best of them. They forget that they have to talk to their bookkeeper about their business finances frequently. They simply skip this topic since it’s something that they don’t want to struggle to understand.
You are on the same team as your bookkeeper, so you might want to also be on the same page. If you recently gave a bonus to one of your employees, tell your bookkeeper. The same applies to providing receipts whenever you buy supplies.
5. No Reconciliation
You have to turn around from time to time and see how far you have come—reconciling your accounts at least once every six months can be a life savior. Most business owners hate this process and complain that it consumed a lot of their time, but this is something you have to do.
Plus, this isn’t a job that you will do all by yourself. Most of the time, you will hire a professional bookkeeper to do this task.
6. No Paper-Backup
Undoubtedly, technology allows us to save our files in a way more efficient way. You can load up all your paperwork in cloud storage and keep them safe there. However, what if your system is hacked or you have a technical issue?
Not having a paper trail is among the most common bookkeeping mistakes you can make. You must always keep track of all of your financial movements on paper for at least the last seven years. This is optimal not only regarding back up but also to show the IRS a paper trail they can follow if they ask for written documentation.
7. Not Deducting or Collecting The Right Sales Tax
Ever since small businesses started entering the road of e-commerce ten years ago, things have been complicated about sales tax. The most common mistake, in this case, is failing to deduct sales tax from a sale, which could cause problems during tax season.
Another complication is that the federal laws have been changed regarding sales taxes when it comes to online business, so make sure you and your bookkeeping service are familiar with the latest rule changes.
8. Not Negotiating Deals
Many business owners are simply not used to negotiating deals when cooperating with another business that provides a service they need. Here comes into play a professional bookkeeper who can write down a reasonable counteroffer for you to present to the other party. This counteroffer can be more advantageous for you and even save you more money in the long term.
9. Unexpected Expenses
It takes a lot of discipline to be able to stick to a budget. You cannot expect to manage a successful business if you don’t plan on how to deal with unexpected expenses. It can be a lawsuit, a website renewal fee that you forgot, or a new vehicle. You should have an emergency fund managed by your bookkeeper, which is going to be able to cover any sudden events.
10. The Classic DIY Mistake
Nobody can run your business like you, and no one can do what a bookkeeper can do. Don’t be like many business owners out there who think that they can do the bookkeeping themselves, and by the end of the month, their cash register just won’t add up. From things as small as parking fees to the major ones such as property purchase, a bookkeeper will have those all written down neatly in a book. They work daily to avoid missing out on something.
For instance, hire a professional who knows what they are doing and stick to them. It will pay off in the future, and you will save yourself all the necessary time you need to manage your business successfully.
11. Not Automating Your Bookkeeping
If your business has reached a point where managing daily ledgers is difficult, then you need automated bookkeeping. This service is your best option to keep track of every money in and out. To get even more beneficial results, choose a bookkeeping system with a cloud or internet base instead of the offline one. Hence, you will get to access your ledger anytime and anywhere without any difficulties.
12. Forgetting About the Balance Sheet
Maintaining a balance sheet helps keep the businessman updated about capital availability, assets, and potential losses or gains. It helps to take prompt and on-spot decisions according to the current scenario. Maintaining a balance sheet also helps yourbookkeeping service when you have to pay your taxes or if you get audited by the IRS.