by Amy Kirkegaard
Poor financial management is the chief cause of small business failure. If math and accounting aren’t your specialty, then as a business owner, bookkeeping is probably your biggest nightmare. It’s tedious, time consuming, and (unfortunately) absolutely necessary.
When it comes to the financial details of your business, doing it yourself may not be the best solution. Unless you have experience with bookkeeping and accounting, you are better off hiring this function out to a specialist. This is a very delicate and complex part of your business.
In the high-tech industry, your expenses are vastly different from someone in the retail industry. But you have similar difficulties when it comes to keeping track of your books. You probably make many of the same mistakes. Here are 10 bookkeeping errors you’re probably making.
Mixing Your Money
Don’t mix your personal money with your business money. Make it a priority to set up separate banking accounts. Don’t forget to include the money you spent before your company went live.
Not Deducting Auto Expenses
Auto expenses – such as mileage, parking fees, and tolls – that are directly related to business purposes can be tax deductible.
No Safety Net
Always have a backup of your computer files, preferably off-site. You can use an online backup service or backup to an external hard drive and keep it in a separate location.
Failing to Track Petty Cash
Petty cash can be used for small business expenses. Each time money is removed, it should be recorded in a log. The remaining balance should always match the log. When the funds are depleted, the money is replaced and recorded in the log. Failing to record these expenses is a mistake. Over time, these small expenses that haven’t made it into the log will begin to add up.
Not Using Software
Use accounting software to help you reconcile your bank accounts, keep track of sales, and stay on top of outstanding payables and receivables. This will be a tremendous help when it’s time to pay taxes. It will save you both time and money.
Misclassifying Employees
There are different regulations for employees (full-time, part-time) and non-employees (consultants, contractors). Which classification you use can impact your tax documents.
Tossing Small Purchase Receipts
Even though the IRS doesn’t require you to keep receipts for certain expenses under $75, it’s still a good idea to do so. They are helpful to have on hand as backup documentation.
Failing to Reconcile
Don’t forget to reconcile your books and your bank statement every month. Notify the bank of any discrepancies. If you wait more than a month to do this, it becomes much more difficult to resolve the problem.
Going Paperless
In an effort to be environmentally friendly, many companies are going paperless. However, during an audit, a paper trail can be a lifesaver. Scanning your receipts may be sound like a great idea, but you wouldn’t want your computer to crash in the middle of tax preparation or an audit.
Not Being Involved
While you may be relieved to turn all your accounting functions over to someone else, you still need to stay involved. Otherwise, you are inviting embezzlement and theft. In addition, knowing the financial status of your company will help you make better business decisions.
If you are unsure of your abilities to manage your books properly, then invest in a bookkeeper or accountant, even part-time. Not only will they save you time and money, but they can keep your company in a good financial position.
Amy Kirkegaard is a freelance writer who writes on a variety of topics, including social media, online reputation management, and mobile payments. She previously worked in marketing and human resources for an oilfield equipment manufacturer.
