As a small business owner, many are familiar with the challenges of bookkeeping. Recording all the appropriate expenses, making sure to capture all the income and reconciling each month can be time consuming and frustrating. But there are mistakes that all small business owners make when it comes to their bookkeeping that can increase its challenges. Below are seven of the biggest ones. By avoiding these mistakes, you can reduce the frustration when it comes time to work on your books.
1. Forgetting to Track Reimbursable Expenses
When you pay for business expenses with cash in your pocket or your own personal credit card, those are reimbursable expenses. You need to track these expenses and turn them into the business for reimbursement. Then the business receives the benefit of the expenses themselves and you have your cash returned to your pocket.
2. Not Saving Receipts Below $75
While it might be a pain at times to keep track of all those receipts, each of them is backup for your deductions at tax time. A small scanner can be used to make electronic copies that can be kept in a folder on your desktop or cloud storage. Then you have them when it’s time to work on your tax preparation. Thus, you can enjoy all the deductions you have earned throughout the year.
3. Not Properly Classifying Employees
With the rise in freelancers, independent contractors and consultants, it can be difficult to determine who belongs to the designation of employee or not. The results can mean misfiling for taxes, especially since there are different rules and regulations for each designation. Therefore, you will want to make sure that you have properly classified all your employees and contractors. Consult your tax professional with any questions.
4. Lack of Communication
Bookkeeping is only as accurate as your reporting of expenses. If you hire someone to handle your bookkeeping, it is important to keep them informed of all bonuses paid and other expenses. Make sure they have copies of the receipts and all the information about the expenses. This will keep your books up to date and avoid any unnecessary time spent attempting to classify expenses at during the end of the quarter.
5. Not Reconciling Each Month
When you receive your bank statement from the bank, it should not be just tossed onto the paperwork pile. Instead, you need to open it and reconcile it against your bookkeeping. Using a bookkeeper can mean that you have the reconciliation completed properly each months. It will minimize the errors within your books over time.
6. No Backup Books
Audits are still possible, even in the world of paperless offices. Therefore, it is important to make sure that you are making a backup of your receipts and expenses. If you are keeping them electronically, then you will want to burn a copy each month. Then put one copy offsite, perhaps in a safety deposit box. This way, if there is an accident at your office, you still have copies of your books. Also, another option is to invest in cloud storage, so that your books are not kept on your desktop in case of technical malfunction. There are multiple storage options available, including keeping a copy offsite with your bookkeeper.
7. Not Hiring a Professional
The most important mistake most small businesses make is not hiring a professional to handle their bookkeeping. As a result, many of these mistakes creep in. A professional can assist you with setting up a petty cash fund and making sure sales tax is properly deducted from your sales total. They can also make sure that all your expenses are categorized correctly. At the same time, they can double check for errors and keep your books up to date. A professional bookkeeper is also typically up to date with current accounting practices.
When it comes to bookkeeping, it can be a challenging to make sure your books accurately reflect your business’ current financial position. There are all types of expense categorizations, as well as the potential of your books being damaged. However, by working with a professional, you can eliminate a majority of these potential errors. Thus, you can enjoy the benefits of having your books up to date, while reducing the stress that comes with keeping them that way. Call or click below to contact one of our MVW Services professionals to see how we can assist you with all your bookkeeping needs.
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