A survey of business owners in the United States found that almost half of businesses said that bookkeeping was their least favorite task of owning a business. 58% of these business owners work more than 60 hours a week and find that bookkeeping is particularly draining.
Learning more about small business bookkeeping mistakes and how to avoid them will make this task much more manageable and less overwhelming. Do you want to learn more about bookkeeping mistakes, income taxes, and managing finances?
Keep reading this article for the top bookkeeping mistakes to avoid and their solutions for managing finances.
Disregarding Small Purchases
One of the biggest accounting mistakes you can make as a small business owner is disregarding small purchases. Businesses have many different types of expenses, and it is important that you keep track of every transaction.
Still, many business owners do not record small purchases on their books. While they may seem like small purchases, they can quickly add up! Instead, it is important that you keep track of every single purchase that you make for your small business, no matter how small.
Not Tracking Reimbursable Expenses
Another issue that many small businesses make with accounting is failing to track their reimbursable expenses. These are expenses that you make for your client that you can be paid back for.
However, many business owners do not mark these reimbursable expenses in their bookkeeping. This can lead to lost money and may even impact your tax deductions.
To protect your business finances, it is important that you track them as soon as you accrue them. This way, you will have proof of each of your expenses and you will be less likely to lose money.
Putting It Off
As a business owner, you have many different responsibilities. Because of this, bookkeeping often gets put off. However, it is important that you do not stall when it comes to bookkeeping.
While it is often a boring task for your business, it is essential that you do it regularly. This will make it easier to keep your business records organized and can help you prepare for financial problems in the future.
Plus, putting off your bookkeeping may make it more difficult to catch errors. If you have to catch up on several months’ worth of bookkeeping, you may make many mistakes.
Instead, it is important that you keep up with your bookkeeping at least once each month.
Improper Record Keeping
Another common mistake that small business owners make with bookkeeping is improper record-keeping of each of their financial transactions.
This includes your receipts. When you do not keep track of each of your business transactions, it may make it difficult to file your taxes correctly and can lead to fines and other issues if your business is audited by the IRS.
Something that can make it simple to track your financial transactions is saving your receipts and expenses electronically.
You can also hire a bookkeeper to record all of your financial transactions. They can organize each of your receipts for you and will keep your records up-to-date.
This way, you will avoid unnecessary penalties from the IRS and you will not overpay for your taxes.
Lack of communication is another significant error that can cause issues with your business bookkeeping. Even if you hire a professional bookkeeper to handle your record-keeping, they will only be effective if they keep you filled in.
It is also difficult to keep track of expenses that were not properly communicated. For example, if you buy business supplies or give one of your employees a bonus without reporting it, it can cause many issues with your business bookkeeping.
Not Saving Receipts
Not only do you need to track your small purchases for your business, but it is also important that you save receipts, no matter how small! Not saving receipts is a common business issue.
While receipts are not required by the IRS, they provide proof and documentation for the deductions that you claim. It may make it easier to claim deductions and can act as a paper trail if you are audited by the IRS.
To avoid this error, you can keep a folder in your office for all of your receipts. This will make it much easier to keep track of your expenses when it is tax season. Plus, you will never lose your receipts, as they will all be in the same place.
Neglecting Sales Tax
Often, business owners will also neglect or mishandle their sales tax. This is especially common with the rise of eCommerce. Many businesses fail to deduct sales tax from their total sales amount, which can cause problems when filing taxes.
This is one of the top tax mistakes that you can make. Rather than using your net income or gross income for taxes, you must use your net income after taxes. This shows how much profit you have after all of your expenses and taxes are deducted from your earnings.
To avoid getting in trouble with the IRS, it is important that you do not neglect your sales tax. Instead, you can hire a professional bookkeeper that is educated about sales tax and will ensure that it is deducted from your total sales.
Forgetting to Reconcile Banks Records
Reconciling your bank records is an important part of business accounting. This is the process of comparing your bookkeeping records with your bank statements.
This will allow you to spot any issues with your accounts and record discrepancies between your bookkeeping and financial statements.
Reconciling your bookkeeping with your bank records will allow you to keep better track of your money and ensure that nothing goes missing from your business. It will keep you more accountable and can help you identify issues with your finances.
Make sure you reconcile your bank statements every month.
Mixing Personal and Business Accounts
It is also important that you do not mix your business expenses with your personal expenses as a business owner. Often, business owners do not differentiate between these two accounts, which is one of the worst financial mistakes you can make as a business owner.
When these accounts and expenses are mixed together, it can be difficult to keep track of them. When it comes time to do your taxes, you may not be able to get accurate bank statements, get the right deductions, and more.
Not Reviewing Financial Statements
Many business owners fail to keep up with their financial statements and don’t worry about it until it is time to do their business taxes. However, neglecting to review your financial statements is a serious mistake when it comes to bookkeeping.
When you meticulously track and review your financial statements, it will help you stay up-to-date on how your company is doing when it comes to finances. This makes it easier to make financial decisions that are best for your company.
Go through your financial statements every couple of months to keep track of your business’s standing and to make sure you are on the right track.
Improperly Classifying Employees
As a business owner, another serious mistake that you can make is not properly classifying your employees. Depending on the types of employees you hire, your expenses and taxes will differ.
For example, some businesses hire traditional employees as well as contractors. If you misclassify your employees, it may cause issues when you are filing taxes.
It may even result in overpayments! Because of this, you must know the employment status of each of your employees and properly classify this.
Not Hiring a Professional Bookkeeper
Finally, it is important that you do not attempt to do your bookkeeping yourself. Bookkeeping can be a full-time job for most business owners. If you attempt to take care of it on your own, you may have to put off other important priorities for your business.
Plus, most business owners do not have the skills or knowledge that is necessary to be a bookkeeper. This can lead to many errors in your bookkeeping and problems during tax season.
Instead, it is best that you hire a professional bookkeeper. They already have the training necessary to help you keep your finances in order. Plus, they can provide an outside perspective that may make it easier to identify errors in your business finances.
Hiring a professional bookkeeper can solve nearly all of your problems when it comes to bookkeeping for your small business.
Learn About Bookkeeping, Income Taxes, Expenses, and More
As a business owner, you must learn how to properly manage your finances and bookkeeping. This will allow you to stay up-to-date with your business finances.
Do you want to learn more about income taxes, business assets and liabilities, QuickBooks, co-mingling expenses, and more? Tax Savers can help!
Now that you learned more about Small Business Bookkeeping Mistakes and their solutions, Our website offers expert advice on business, finance, taxes, and more and can help you understand your small business finance needs. Check out our business blog to read more of our articles and for advice for your small business.