06 Oct Top 4 Bookkeeping Mistakes for Small Businesses
Bookkeeping can be crucial for small businesses. This tedious work is a headache for most small business leaders and can feel like a waste of your drive and passion. As a result, it often takes a back seat to the more pressing ins and outs of running a small company. Many business owners are playing a constant game of catch-up with their monthly finances, and pay for it come tax season.
The good news is that bookkeeping done right actually saves you time and can become one of your business management strengths. When you stop making these fatal bookkeeping mistakes, you can say goodbye to those last-minute scrambles for receipts, expense reports and bank statements at the end of the year.
1. Putting It off for When You’re Less Busy
Let’s face it — small business owners have a lot on their plates. Almost half of business owners work more than 50 hours a week as it is. If some of those already long hours aren’t dedicated to your company’s financial health, the time you think you’ll have to do it later will evaporate. You’ll always have a new fire to put out, growth opportunity to pursue or task requiring your unique expertise. Don’t let your bookkeeping fall behind in the meantime.
Even though small entrepreneurs dabble in everything from sales to human resources, their most dreaded role is probably accounting and financial planning. We get it. Bookkeeping is its own language, and a challenging one to learn, at that. If you’re a new business owner, you probably aren’t familiar with all the intricacies of record keeping. You might fear making a mistake, and that only makes procrastination feel more enticing.
To avoid the accounting backlog, break up and schedule your tasks. For some businesses, accounting involves daily responsibilities, such as reconciling sales against receipts or invoicing clients and updating inventory. Tasks like processing payroll, following up on invoices and tracking expenses need your attention at least twice a month. When it comes time for end-of-month, -quarter or -year accounting, you’ll thank yourself for keeping up with the small stuff.
2. Not Saving Receipts Under $75 — or at All
When they learn the Internal Revenue Service (IRS) doesn’t require documentation for expenditures under $75, except for lodging, many business owners take a sigh of relief. They cross receipt tracking and filing off their to-do lists and don’t give it another thought. However, even when not required for business deductions, you need to have them handy during an audit. An even bigger mistake is not keeping any receipts, since you’ll miss out on valuable deductions.
To keep track of those tiny yet vital receipts, establish some smart habits for any time you use your corporate credit card. Set aside an email folder for your digital receipts and a fold of your wallet for paper receipts. Digitize and label your physical receipts. Organize them all by month so you can track them for monthly accounting purposes.
3. Forgetting to Reconcile
As a business owner, you probably glance over your bank statements when they arrive in your inbox each month. Is your review as thorough as it needs to be for proper bookkeeping?
Formally reconciling your bank statements lets you detect errors, count bank fees toward your expenses, find fraudulent charges and track accounts payable and receivables. It also lets you determine your current cash on hand alongside expected cash flow. To make sure you aren’t missing anything, match your bank statements up against your own general ledger, and get to the bottom of any discrepancies.
4. Not Hiring a Bookkeeper
Even if you master the art of bookkeeping for small businesses, it’s worthwhile to hire a professional. Many business owners make the crucial mistake of thinking in-house bookkeeping is cheaper. While you won’t be invoiced for the hours spent pouring over your books to find that one number not adding up, you’ll certainly pay for them. The time you devote to bookkeeping is time you can’t spend growing your business, leading your team and helping your customers.
If your accounting tasks are draining your time and energy, it’s time to call a professional. Tasks that could take you three or four hours, an experienced bookkeeper can do in one, saving you time and letting you get back to doing what you love.
There are hundreds of common bookkeeping mistakes for small businesses. It can be hard to spot them all when you’re splitting your attention between all the roles you assume as a leader. Bookkeepers know what to track and how to report it, so you don’t have to worry about making errors without realizing it.
Among their top three most significant obstacles, 15% of small business owners cite federal taxes, and another 13% cite state and local taxes. Professional bookkeepers stay up-to-date on all the latest tax rules and regulations, so you don’t have to. They’ll prepare your books for tax season so you can take advantage of the tax credits and deductions you deserve.
How to Prevent Bookkeeping Mistakes
With all the small business bookkeeping mistakes you could make, it’s crucial to stay organized and up-to-date. Going through your records with a fine-toothed comb and taking strategic steps to maintain healthy finances can go a long way towards bookkeeping bliss.
Here are a few more tips to keep your books in order:
- Keep your finances separate: When you love what you do and do what you love, the lines between business and pleasure can blur. It’s even harder if you use the same credit card and bank account for everything. Make it easy to track your deductible business expenses and avoid miscategorizations that can get you into trouble with the IRS. Set up a business bank account and credit card, and achieve a little more work-life balance in the process.
- Maintain accurate records: Besides tracking and storing your receipts and files for the current year, it’s crucial to keep a complete record of your financials for the last three years. You may need to submit an amended return or face an IRS audit even after you file. You’ll also need to save employment records for four years and the cost of bad debt or income you failed to file for at least six years.
- Know when to get help: When you’re the only one tracking your finances, things are bound to fall through the cracks. A missed filing deadline, inaccurate invoice or lost receipt can cost you. Keep your books accurate and up-to-date with the help of a professional bookkeeper and win back some of your time.
Outsource Your Bookkeeping to the Pros
Bad bookkeeping it a costly mistake, and trying to keep your bookkeeping clean and accurate is suck on your time, money and happiness. As a small business owner, you wear many hats. Bookkeeping doesn’t have to be one of them. Focus on the hats you like wearing and get rid of your accounting headaches by letting the Steph’s Books team clean up and streamline your finances.
Our services include payroll management, bank statement reconciliation, expense coding, accounts payable and receivable management. We’ll clean up your books and develop a plan to keep it clean, and we always customize our services to meet your unique needs. We even provide our clients with financial literacy education and QuickBooks training, so you can feel confident managing your company’s finances. We’ve been helping small businesses and professional services companies like yours in the Chicago area for 25 years.
Contact Steph’s Books to speak with a professional bookkeeper and return your focus to your growing business.