No business, from one-person operations to multinational enterprises, can avoid the tedious task of bookkeeping. While it’s not one of the most appealing aspects of the job, bookkeeping is essential to business success—and mistakes can be disastrous.
Most bookkeeping mistakes are caused by a lack of time or knowledge. You can minimize bookkeeping blunders by arming yourself with the correct information and tools. Knowing what to do and what not to do with your books can help guarantee that your company has a solid foundation for growth and profitability.
By avoiding these six common bookkeeping errors, you can save yourself a lot of time, money, and stress:
It’s all too easy to put off daily or weekly bookkeeping tasks, especially if you’re uncertain if you’re doing your books correctly. But if you wait until the end of the year to begin documenting and organizing, you’ll be in for a lot of headaches and some major repercussions.
You’ll be basing business decisions on outdated financial data. You won’t have time to detect and correct errors before they become serious issues. And reconciling bank accounts will be a nightmare.
Solution: Real-time bookkeeping makes everything easier. So, set aside some time each week to record your revenue, expenses, payroll information, and other essential bookkeeping transactions. Procrastination will soon be a thing of the past as you work to make business bookkeeping simple and painless.
2. Mixing Your Personal and Business Expenses
The IRS requires that you keep track of your expenses and separate personal and business expenses. Moreover, keeping your business and personal accounts separate allows you to see exactly how your business is doing financially. It’s difficult to tell if you’re making money when you’re using your personal debit card to buy work supplies.
While it may seem easy to use your personal funds to pay for a business expense, doing so can make bookkeeping difficult in the long run.
Solution: Make it a habit never to use your personal funds to cover business expenses and vice versa. Maintain a separate bank account and credit card for your business. You can even put a sticker on your business bank cards to distinguish them from your personal bank cards.
3. Improperly Categorizing Your Expenses
If you do not know where your money is going, you might fail to fully grasp your overall business health. You might not be able to see bad spending habits that you can quickly address to make your money work for you.
Accurately tracking income and expenses in the right categories can help you keep an eye on where you’re spending money. An expense report can quickly highlight areas where you may be overspending, allowing you to plan where and how best to cut back.
Solution: One fix is to hire a qualified bookkeeper to handle the job for you. A bookkeeper can help ensure you are running your business from a categorically correct point of view.
Another option is to use accounting software like QuickBooks, Freshbooks, or Xero. With these programs, you’ll find preset categories like payroll, rent, utilities, and travel. You may also wish to add more categories to keep a more detailed account of where you spend money.
4. Throwing Away Your Receipts
It may seem tedious to keep and manage all your business receipts, but you can sleep better knowing you have everything in order–especially if you get audited. If you lose your receipts, you won’t be able to back up the deductions you made on your tax return during an audit. Receipts prove you spent the money; you can make notes right on the receipt why you incurred this cost.
Solution: Keeping and organizing business receipts doesn’t have to be difficult or time-consuming. You can simply take a picture of the receipt and store it in Google Drive or Dropbox–all right from your phone. Alternatively, you can upload photos of your receipts to the accounting software you’re using.
Moreover, record the details of every expense, particularly for meals and entertainment. This will help you justify any deductions during an audit.
5. Neglecting to Back Up Your Books
Another of the most frequent bookkeeping errors is failing to back up your records. The last thing you want is to diligently maintain accurate records, only to lose all your data if your computer crashes—with no way to retrieve it. Finding and utilizing a reliable accounting software program is the first step in effectively backing up data.
Solution: Today, most accounting software is cloud-based. With online software, all your data is automatically backed up without any installation or updating required.
However, you will require a backup if you use a program directly stored on your computer. Do not back up the file on the same hard disk where it exists. Save the backup file to a flash drive or external hard disk instead.
6. Figuring Out Everything Yourself
When entrepreneurs are unsure of what they are doing when it comes to bookkeeping, many of them prefer to wing it. The problem with guesswork is that it compounds over time, ultimately leaving you with a year’s worth of books to resolve at tax time. If you don’t correctly do your books on time, you may overlook tax deductions, incorrectly categorize expenses, and miss filing deadlines.
Solution: Outsource the job to a professional bookkeeper.
Know When It’s Time to Ask for Help
As your business grows, keeping tabs on your expenses and ensuring that your accounts are accurate can get more difficult and time-consuming. It takes a lot to keep track of your income, expenses, salary payments, insurance, and more—while simultaneously running your business.
Hire an experienced bookkeeper who can help you make better business decisions. A bookkeeper can implement an effective system and save you time and money. This way, you don’t have to worry about missing financial obligations, and you can focus on building your business.
Guest Contributor: Arleen Atienza can be reached at [email protected]