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Starting up a small business is hard, and it’s a lot of work—watch out for these common bookkeeping mistakes made by small businesses.
As a small business owner, managing your books can be a pretty daunting task, especially if you lack either the relevant experience and expertise—or both. Unfortunately, bookkeeping mistakes that are easy or ”natural” enough to make can wind up being quite costly, and cause a fair amount of hassle. This guide is intended to help you to familiarize yourself with some of the most common of these errors—and provide tips on how to avoid them.
Keeping Your Own Books
Though it’s certainly cost-effective (if done right…), handling the books yourself might not ultimately be the best option for your business. Bookkeeping requires specialized skills, expertise, and training to be done right, i.e., so as to optimize the potential for gains and minimize that for losses, most reductively speaking. -A competent bookkeeper may well save you time and money in the long run. Hiring a professional to efficiently but thoroughly take care of the bookkeeping is a consideration every owner should make at some point.
Throwing Out “Small Sales” Receipts
Many small business owners make the mistake of not keeping receipts of small expenses, assuming that they are not important. However, such receipts can be valuable during tax time, holding the potential to reduce your tax liability. We strongly recommended keeping all receipts, but it can be useful to designate a separate “small transactions” folder for those little odds and ends below the $75-$100 range.
Losing Track of Reimbursables
Small business owners often pay for expenses out of pocket, assuming that they will be reimbursed by (e.g.) a parent company, the IRS, as a result of a handshake deal, etc. And, of course, plenty of these types of expenses are reimbursable. However, failing to actually keep diligent track of the sundry day-to-day “write-offs” can wind up causing trouble when the time comes to actually claim reimbursement—with ranging (if uniformly unpleasant) outcomes like financial losses and time-consuming disputes. We recommend getting into the habit of using a system to consistently track reimbursable expenses; notebooks, computer programs, mobile apps, actual spreadsheets… -It’s a matter of personal preference how you keep track of your reimbursables. The far greater imperative is that you do.
Misclassifying Workers
Determining who is an employee and who is a non-employee can be challenging, especially with the rise of independent contractors and freelancers. However, misclassifying employees can lead to legal issues and financial penalties no small business owner needs. Best to consult with a tax professional to ensure that you’re properly classifying your employees.
Neglecting Monthly Reconciliation of Books and Bank Statement
This is just a necessary part of doing business. Failure to do so can lead to errors and discrepancies that may be laborious to trace back to a point of origin, let alone resolve. Nonetheless, it is indeed a commonly-made mistake. Hiring an experienced bookkeeper who can reconcile your books and bank statements each month is the best way to go if you find this particular responsibility frequently falling by the wayside.
Not Having Back-Ups
Back up your data. Back up the backup. Back up everything and do it often. This process is made much easier, of course, by digital record keeping…
Closing Thoughts
Avoiding bookkeeping mistakes is quietly crucial for the success of your small business, one might say. -Don’t get caught on the old “out of sight, out of mind” snare. By heeding our advice, you can handily avoid many “error-dependent” complications that might otherwise negatively impact the financial health of your business.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.