As all accountants, CPAs, bookkeepers and other tax professionals know, Easter means more than a celebration. Filing deadline for income tax is April 17, coming up in just a few days. But for now we hope you have a wonderful Easter weekend.
Below are what MoneyThumb considers the top 10 biggest mistakes when it comes to bookkeeping and accounting for small business.
10 Most Common Mistakes in Small Business Accounting
For many small business owners who do their own bookkeeping, ensuring the accuracy of every account is crucial. Without accurate records, you open your business to financial mismanagement. Protect yourself and your company by avoiding these common bookkeeping mistakes.
1. Bad record keeping.
If you’re in the habit of scribbling notes on scrap paper or relying on handshake deals, stop. Without a clear record of these transactions, you’re putting your business in danger of fiscal mismanagement.
2. Not categorizing expenses.
If you find yourself skipping the Category section of your accounting software, you're shortchanging yourself. This is the only way that you’ll be able to accurately track where you are spending your money.
3. Skipping reconciliation of your accounts.
Assuming that just because you’re paying attention to how much money is in your bank account, skipping reconciliation of your accounts is not a good business practice. This process helps you identify charges that shouldn’t be there. Banks and their employees can make mistakes, and if you don’t catch them quickly, it could cost you thousands of dollars.
4. Not backing up your data.
If you rely on an accounting software program, then you need to make sure that you regularly back up your data onto an external hard drive. Even online accounting programs can crash, or worse- the system could be hacked. Contrary to popular belief, there are high-risk threats when dealing with small business bookkeeping.
5. Neglecting your taxes.
Neglecting your taxes. Leaving your tax filing to the end of the quarter is a sure-fire way to get hammered by the IRS. Tax planning needs to be part of the profit equation for every project. You also need to set aside money to pay those taxes as soon as income comes in.
6. Wasting time.
If you find yourself spending more time on your bookkeeping than on running your business, it’s time to consider some outside help. Hire an employee or contracting firm to take over your record keeping so that you can concentrate on what you do best.
7. Wrong classification of employees.
There are a lot of different types of employees, and each group is subject to a different section of the tax code. Make sure that you are classifying your workers properly. Consult a tax professional to avoid paying back taxes and hiring a tax lawyer later.
8. Too much petty cash.
While some businesses tend to keep a large supply of cash on hand and others a smaller amount, no business should be using this fund as an excuse not to record transactions with clients and suppliers.
9. Not tracking reimbursable expenses.
Often, small business owners skip this tracking step because reimbursable expenses seem like small invoices that will just bother a large client. In actuality, these expenses can add up to large sums quickly.
10. Poor communication.
If you have employees or contractors who help you with your small business bookkeeping, make sure you communicate with them consistently and clearly. Surprises are never a good idea and transparency makes life easier for both you and your vendors.