Often, small business owners make common bookkeeping mistakes during the first year of their business. It is what bookkeeping services will also tell you. Nonetheless, small business owners can still avoid the five bookkeeping mistakes despite the fact they do not have the money and time to study accounting. Avoiding common bookkeeping mistakes will also avert business owners from putting their companies in peril. We are going to tell you about the five common bookkeeping mistakes in this post that business owners make. Knowing about those mistakes will also help you avoid the mistakes that many business owners make.
Five Bookkeeping Mistakes That Small Business Owners Make
Delaying Managing the Books:
Running a business is not easy, and it is what many business owners tell. Furthermore, business owners often delay the task of managing their books. Usually, they delay it because serving clients remains a top priority for them. Nevertheless, delaying managing the books of accounts has consequences. One of the aftermaths of delaying it is that businesses do not know a clear picture of their business. Additionally, you cannot properly file your taxes if your books are unorganized. Most importantly, you cannot make the best financial decision if your books are not up to date.
Using Incorrect Categories:
Business owners need to create categories for properly managing their financial transactions. Besides, there are some good practices for structuring and categorizing expenses. However, small business owners are generally not familiar with such practices.
Further, there are also categories that business owners need to track separately and file taxes. Besides, you cannot tell where an expense should go if you have unorganized categories in your books. For example, you may find it hard to figure out if you should put software cost as an office or an adverting expense or if you should make a separate category for software costs.
Additionally, it is important that you take some time to think of categories before managing your books. In other words, you should make clear which transactions should go in a specific category. Further, you can do it if you give categories clear and simple names.
Business owners also make the mistake of throwing their receipts for business expenses. Nonetheless, they do not realize the importance of keeping those receipts. For instance, business owners will be happy to know if they have saved their receipts for an audit. An easy way to store business receipts as per bookkeeping services is that business owners convert them into electronic format. If they do, they can easily retrieve the receipts when they need them. Besides, businesses can also use software, such as Receipt Bank, to take pictures of their receipts.
Not Separating Personal and Business Expenses:
One of the bookkeeping practices is that you keep your personal and business expenses separate. The simplest way for businesses to do that is that they have separate bank accounts and credit card accounts. Otherwise, you will need to go through all bank and credit card statements to separate your business and personal expenses. Further, going through all bank statements is definitely a tedious exercise.
Doing Everything on Own:
When small business owners start a business, they often try to do everything on their own. Business owners try to manage everything on their own because their business is in the early stages. They try to do things, such as bookkeeping, inventory management, invoicing, customer service, etc., on their own. However, business owners find it hard to manage everything themselves when their business grows.
Additionally, the first thing that business owners put aside with business growth is bookkeeping and accounting. Business owners also know the importance of managing books. But they do not find enough time to handle the books of accounts when their companies grow. As a result, the problem gets bigger for business owners and also causes them to suffer from stress.
These are the five common bookkeeping mistakes that business owners make. Nevertheless, business owners can avoid these mistakes if they assign the task of managing their books to someone else. Small business owners can outsource bookkeeping from a professional accounting firm to manage their books effectively. Assigning bookkeeping to a professional will also help business owners avoid errors and ensure they also meet their tax requirements. It will also allow business owners to know the exact financial position of their company.
Business owners often make common bookkeeping mistakes during the first year of their operations. Nonetheless, they can avert putting their company in danger if they avoid making such mistakes. The following are five common bookkeeping mistakes that small many business owners make:
- Delaying Managing the Books
- Using Incorrect Categories
- Discarding Receipts
- Not Separating Personal and Business Expenses
- Doing Everything on Own
Small business owners who do not have the time to manage their books can outsource bookkeeping services from a professional. Lastly, relying on a professional to manage the books ensures businesses file their taxes on time while avoiding bookkeeping errors.