For a small business owner, having to carry out bookkeeping can be the bane of even the best small business.
The tedious and mundane task of bookkeeping often takes up hours of time. This is the number one reason for why over half of all small business owners do not keep their finances up to date on a monthly basis.
However, bookkeeping, as mundane as it may appear, is a great tool when it comes to business management and growth. With accurate and consistent management of your company’s finances, you can manage and expand your business effectively.
A small bookkeeping mistake can be expensive. With a little bit of care and attention, you can ensure you save not only time but also money. We’re here to help you understand how avoiding these mistakes can make your bookkeeping process easy.
Read Now: The Basics of Bookkeeping
Here are the most common bookkeeping mistakes you can avoid to make life easy for yourself:
1. Putting it off for as long as possible
It’s in our nature to put off the boring tasks in life – bookkeeping being high on that list. But the longer you leave it, the worse it will get.
You’ll struggle to remember what your receipts and transactions were actually for – meaning your bank reconciliation could turn into a nightmare.
Your accounting will become increasingly out of date – meaning you aren’t keeping track of your performance. And if something is going wrong you won’t know about it, maybe until it’s too late.
2. Throwing away your receipts
Receipts are an important part of record keeping, including for small purchases. However, it’s quite easy to forget about them. They can get lost, stored badly or thrown away without a thought.
You should keep an ordered folder of your receipts, or better still use accounting software to scan them.
Don’t forget about saving recipes for small amounts – they do add up!
Read Now: The 5 Best Accounting Software Options for Small Businesses
3. Forgetting to back up your computer data
If you don’t back up your computer data you run the risk of easily losing all of your business records, leaving you in a considerable financial mess.
If you keep manual records using Excel or Google Sheets, it’s important to back up your data daily.
If you record your data digitally, always check with your software provider to ensure it is backed up securely. It should be backed up at least once a day, ideally to several safe and secure locations.
Read Now: Which is Better Digital or Physical Bookkeeping?
4. Overlooking tax deductions
Neglecting to track your reimbursable expenses is like flushing money down the toilet. Not only will you lose money, you could also lose tax deductions.
Try to get into the habit of tracking your expenses.
There’s plenty of expense-tracking apps available to make the process easier and less time consuming.
Read Now: Make the Most of Tax-Deductible Expenses for the Self-Employed
5. Mixing business and personal spending
As your company grows, its essential to have a distinct line between the money that you spend on yourself, and the money you use for your company.
Failure to draw that line can cause some confusion when evaluating the progress of your business. It also means that it’s harder to claim back some of the money you spend on things like marketing, product development and even employee wages.
Make sure you set up a separate business bank account. This is a critical move that is often overlooked by many new and part-time professionals exploring their entrepreneurial side for the first time.
Read Now: What are the Four Best Business Bank Accounts?
6. Not reading your financial statements
Financial statements are a great insight into the health of a company. Understanding how to read a company’s financial statements is a key skill for any investor wanting to make smart investment decisions.
Not reading your financial statements can lead you to make bad decisions for your business.
7. Neglecting sales tax
Neglecting to report sales tax is a bookkeeping mistake that could come with hefty consequences. Negligence in sales tax collection and reporting can cause you to pay penalties and fines.
Coordinate with your bookkeeper and accountant to make sure your business is paying the right amount of sales tax on time.
Read Now: A Bookkeeper’s Guide to claiming Tax Deductions
8. Not allocating proper budgets for each project
Failing to create a budget for each project is a mistake for your business. Initiating a project without first determining a proper budget can be costly. Beginning a project without a budget is a sure way to end up splurging a lot more than you actually intended.
You don’t want to spend your limited funds on projects that won’t present a substantial return on investment. Forecasting is a process that, alongside budgeting, can help you predict the success of projects and decide what to invest in.
As your business grows, you will begin to learn more about what your business needs and how much to carry on with its operations. This will allow you to allocate budgets more effectively.
Read Now: What is “Forecasting” In Accounting and How is It Useful?
9. Lack of communication with your bookkeeper
It is important to have strong communications between your bookkeeper and company employees. Your bookkeeper should always know what’s going on in your business.
It’s crucial that your small business maintains a complete record of its transactions, and it’s even more crucial that this information is thoroughly communicated with your bookkeeper.
Maintaining clear communication with your bookkeeper makes it easier to keep tabs on all of your income and expenditure.
Read Now: How Bookkeepers Can Help You Save Your Money
10. Not chasing late payments
Chasing late payments is a big issue for small businesses. If you’re not receiving payments on time, it could lead to a drop in profits, a struggle with your cash flow or even worse.
You need to stay on top of your accounts and chase those late payments. After all, you’re a business. You provide a product or service and you expect to get paid.
Make sure that you establish payment terms with your customers so they are aware of when to pay. This way your request for payment doesn’t seem out of the blue and you are more likely to receive prompt payment.
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If you need assistance managing your business, get in touch with our Count team today to find out more!