It is an accepted fact that bookkeeping is not everyone’s cup of tea, but one cannot deny the fact that ignoring bookkeeping is detrimental to your business. So, of course, every business owner finds ways to maintain their books. Most big established businesses hire bookkeepers so that the owners can concentrate on running their business. What about small business owners; now that is a bit more complicated.
Small business owners most often than not have only one thing on their mind- growing their business and making profit, not that you can blame them, but what happens is that in the process, bookkeeping is sidelined and not wanting to spend too much on the “menial” task, the small business owners delegate it (to someone with no bookkeeping skills) or decide to do it on their own. Oh dear, trust me, that is definitely a recipe for disaster and mistake # 1. It is important that your small business bookkeeping is done with the utmost care and by someone who knows what they are doing. Your books will be accurate and the task will be completed quickly and efficiently.
Mistake #2- How many times have you thrown away receipts for minor purchases? You might not think too much of it then, but when Uncle Sam asks you for documentation for claimed expenses, you will wish you had done otherwise (it happened to us and it isn’t a day we choose to remember). So make it a point, or better, a habit to keep every single receipt and maintain a separate file for them.
Mistake #3- Do you reconcile your books and bank accounts every month? Did I hear anyone say “No”? Huge mistake! One of the fundamental elements of good small business bookkeeping is that your books are reconciled with your bank accounts every month. Make time every month to get this done or else things can go really bad.
Mistake #4- If you rely on technology to take care of your bookkeeping, I hope you have backed your data. Today’s heavy reliance on technology means that everything is online, while that is good for numerous reasons, it also leaves you susceptible to data corruption and data loss; lose your data and you lose everything. So the only precaution- make sure you have accurate and up-to-date data backed up on preferably an external device.
Mistake #5- You might not have thought about this but improper categorization of your expenses and employees is a big no- no in small business bookkeeping. Your categories, sub- categories, independent contractors, freelancers, regular employees are all key elements in understanding your business’ finances, so name them right.
Mistake #6- I cannot begin to count the number of times I have been told how important communication is to life and living; well believe it or not, communication is essential to bookkeeping as well. How? Imagine what happens if the person maintaining the books- you, an accountant or whoever keeps your books- doesn’t know when $1000 is given as a bonus or doesn’t have relevant receipts? Ouch! Backtracking is such cases is not just painful but also increases the probability of errors; so make sure you have an open line of communication with your accountant.
Mistake #7- Do you often incorrectly account your sales tax? I seriously hope not because oversight in collection and reporting sales tax would mean you have to pay significant fines and penalties. Why go through all that trouble?
Mistake #8- How many people are good with numbers? To be honest, I have no clue but not everyone is good with numbers and at the end of a long day all you want to do is relax and in your hurry to do so, you make a few calculation errors. This is a common occurrence, and you don’t need me to tell you what these math errors can do to your bookkeeping and to you.
Mistake #9- This is probably the most common mistake and the most dangerous- falling behind on your bookkeeping. Understandably small business owners often can’t find the time to enter their expenses but to not do so will leave you in a bigger mess. So fix a slot in your day’s schedule and sit down to enter your expenses without fail at the appointed time.
Mistake #10- That brings me to my last question- do you have an accounting system? If you don’t, you should consider doing something about it; it will make your life a whole lot easier and bookkeeping accurate and less painful.
I have only covered the top 10 common small business bookkeeping mistakes; there are so many more. So what can you do to avoid these errors? Be more careful with your bookkeeping, but if you ask me, I think you should let go- let go of your bookkeeping- hire a competent bookkeeper or find yourself a reliable accounting software. While this will not solve all your problems, it will take care of most of them and most of all, give you time to focus on growing your business. Always remember that bookkeeping and accounting is capable of making or breaking your business.