Top 5 Bookkeeping Mistakes To Avoid For Small Business Owners
Introduction
For a small business owner, bookkeeping can be intimidating. However, by avoiding common mistakes you can keep your bookkeeping simple. In this article, we'll discuss the most common errors to avoid so that you can focus on running your company rather than worrying about numbers.
Not having a regular record-keeping system.
A record-keeping system is a must for small business owners. You can’t deduct expenses if you don’t keep records of them and you can’t calculate your income accurately without accurate records of that as well. It is important to keep all your financial documents in a way that makes them easy to retrieve, reconcile, and file.
Also, make sure to have a system that allows you to track purchases made on credit cards so that these purchases are recorded appropriately. If there are any questions about how much money was spent on something, in particular, make sure the transaction is clearly documented so it can be easily found when needed.
2. Mixing business and personal expenses together.
One of the most common bookkeeping mistakes small business owners make is mixing business and personal expenses together. If you don't, it's difficult to determine if you're making a profit or losing money because some of your largest business expenses may be going on items that are also part of your personal life.
To avoid this mistake:
Set up separate bank accounts for each type of spending—business and personal. It’s important to have them separate so you can easily see where all the money is going and ensure that only funds designated for one purpose or another make it into their respective accounts. You should also set up a credit card specifically for your company in order to limit the amount that gets charged thereon (which will help keep trackability).
Use different checking accounts for each type of spending as well (such as "Business Checking" vs "Personal Checking"). This will allow you more control over how much goes into each account, enabling better visibility when it comes time to reconcile them at month's end (and thus avoid mixing them up).
3. Not having a system for keeping you on top of your invoices and payments due.
Not having a system for keeping you on top of your invoices and payments due.
A lack of organization will be the death of your business if you're not careful. Make sure that you have a system in place to track when invoices are issued, when they are paid, and what outstanding balances are still owed. If there's anything more frustrating than chasing money owed by clients who haven't paid their bills it's chasing them down!
Make sure that each client is given their own unique invoice number so that payments can be easily tracked back to each individual invoice issued by your company. This also makes it easier for accountants or bookkeepers to track where all the money has gone in case something goes wrong and they need to track down where the money went.
4. Not understanding the basics of accounting and not preparing for tax time.
It's important to understand the basic accounting and tax laws in your country, as well as how they apply to your business. This can be overwhelming, but it's also essential because failing to comply with them may result in fines or even legal action.
The good news is that you don't need a degree in finance or accounting to properly prepare for tax time, but having a good grasp of what you need to do will help make this process easier for you.
To start off on the right foot, keep excellent records of all transactions related to your business so that everything can be accounted for accurately when it comes time for taxes. You should also keep detailed financial statements ready so that they're easy for others—like accountants or bookkeepers—to glance at quickly and see where things stand at any given moment (i.e., whether there are any discrepancies).
5. Don’t ONLY focus on categorizing transactions; remember other critical functions such as cash flow, profitability, and inventory.
Let’s face it: bookkeeping is important. If you have a small business, you need to have some system in place to record sales receipts and keep track of cash flow and other critical functions like profit/loss statements, inventory control, and payroll.
Small businesses can keep their bookkeeping simple by avoiding these 5 mistakes.
Keeping your books simple is the best way to make sure you're on top of everything.
It's also the easiest.
The following five mistakes can cause you big issues:
Not having a regular record-keeping system.
Mixing business and personal expenses together.
Not having a system for keeping you on top of your invoices and payments due.
Not understanding the basics of accounting and not preparing for tax time.
Don’t ONLY focus on categorizing transactions; remember other critical functions such as cash flow, profitability, and inventory.
Conclusion
If you’re a small business owner, it can be tempting to just try to keep track of everything yourself. But if you want to keep your sanity and avoid mistakes, it’s worth investing in some professional help. A good bookkeeper will not only make sure your books are accurate but also save you time so that they won’t take over your life with endless hours of tedious work or stressful deadlines.
