Small business owners often make bookkeeping mistakes unknowingly
Avoiding the bookkeeping mistake(s) is easy when you engage an expert.
The tedious and mundane task of bookkeeping can often take up hours of time. Bookkeeping, mundane as it may appear, is actually your biggest secret weapon when it comes to business management and growth.
Business owners that accurately and consistently measure financials and other key indicators can effectively manage and expand their businesses.
Here are the 15 most common bookkeeping mistakes you need to avoid:
Bookkeeping Mistake 1: Trying to Do It All Yourself
You are only given 24-hours each day. As a small business owner it’s important to make sure you are filling them with only the most important tasks. While money management is certainly an important task, it’s not important you be the one to do it!
If you don’t have a fairly strong background in accounting and business tax law, it’s probably advisable you don’t handle your own bookkeeping. Delegating this task to a professional will help you double check for errors and free you up to work on your business, not in your business.
Bookkeeping Mistake 2: Always Going the Cheapest Route
While pinching pennies can certainly save your business money, there is a point where frugality can cost you money. The adage “you get what you pay for” rings true. Spend a little extra to get a quality accountant rather than the cheapest bookkeeper available.
Do your research before spending money on other business services and items that have a useful life of more than a few months. When purchasing items like office furniture, equipment, or software, a good rule of thumb to follow is to select a moderately priced item and purchase it when it’s on sale.
Bookkeeping Mistake 3: Failing to Negotiate Vendor Terms
Many small business owners frequently purchase items for their business from the same vendor, month after month. If this is your practice, it’s a great idea to contact your vendor and build a relationship with them.
Even if your purchases are relatively small, don’t be afraid to call and ask questions. Often, you can negotiate fixed pricing or longer payment terms. This can save “bill shock” and allows you to keep more cash flow working for your business.
Bookkeeping Mistake 4: Failing to Keep Track of Receipts for Minor Purchases
Improper or poor receipt and record keeping is common mistake in many businesses. It’s easy to loose receipts or forget about those small expenses that seem insignificant. It all adds up.
Maintaining accurate records on a monthly basis and a proper filing system can save you time and money on your income taxes. It can also provide the necessary documentation in the event that you are audited by the Tax Office.
In case of a potential audit, accurate records of income and expenses could end ups saving you thousands of tax dollars.
Bookkeeping Mistake 5: Writing Off Major Purchases as Immediate Expenses
If you visit your local office supply store and pick up $250 worth of printer paper and other items that have to be replenished frequently, it’s perfectly acceptable to log the purchase under “office supplies” and write it off.
On the other hand if you happen to pick up a new $250 printer, the purchase needs to be logged differently. It’s not the amount that matters, it’s the useful life of the items you purchased.
A printer will definitely be used longer than a few months, so add it on the books as an asset and depreciate it over the estimated useful life of the item. You can still write it off in full if the tax provisions allow this.
Bookkeeping Mistake 6: Improperly categorising expenses.
If you or someone you have hired does not have the knowledge of formal bookkeeping practices, problems can arise! Accurately tracking income and expenses in the correct categories ensures proper measurement of profitability.
Knowing the different tax treatments of each income and expense category can result in significant tax savings, as well.
Bookkeeping Mistake 7: Failing to Keep Hard Copies of Records
In a world of Cloud computing and Internet banking, many small business owners feel safe relying on the Internet to keep their records. While the idea of “going paperless” might sound like an eco-friendly, no-fuss option, think twice before you go this route. Many banks only give access to online records for a few months, so business owners come up short if they wait until tax time to print off and reconcile bank statements.
We live in a world of heavy dependence on technology where issues can suddenly arise. There is always a chance that something could happen to your data, and you need to be prepared. It is important for every business to back up their data to avoid potential losses.
Bookkeeping Mistake 8. Not reconciling bank accounts.
Not having separate bank accounts for personal and business activities can become an issue. If you are audited, you may need to provide complete records of business-related activities that are separate from your personal expenses.
Make sure that your bank statements are properly reconciled every month. This will help to minimize errors and identify potential issues.
Bookkeeping Mistake 9. Bad petty cash management.
Business owners often operate with a small amount of petty cash, but they have little or no knowledge of how to track it. Be sure to set up a system which allows you to track the cash kept on hand for the business and what it is being used for. Buying a petty cash lock box from your local office depot and obtaining receipts for all disbursements is a great way to start.
Bookkeeping Mistake 10. Giving Employees Too Much Access with Too Little Supervision
While it is a good idea to delegate your bookkeeping to an experienced professional, it isn’t necessarily a good idea to give them open access to business records without a system of checks and balances in place.
Many small business owners assign responsibility of the company books to a close family member or friend with accounting experience, only to find out several years later they had been ripped off.
Had they reviewed cancelled checks or petty cash ledgers once a month, the issue would have been caught with minimal damage done.
Bookkeeping Mistake 11. Not Keeping Things Current
The initial years of a new business are extremely overwhelming, but failing to keep your books current will only make the situation worse. If your books are suffering because business is booming, that’s a sure sign you need to bring on an extra hand.
Costly errors will be caught more quickly, and your business operations will be more efficient in general.
Bookkeeping Mistake 12. Simple Mistakes when it comes to GST
Some common mistakes when claiming GST include:
Claiming GST credits without a valid tax invoices, the full amount of purchase when goods are used partially for private purposes, or where supplier is not registered for GST.
Bookkeeping Mistake 13. Not invoicing quickly and letting overdue debtors fall through the cracks
A lack of time can mean that business owners take weeks or even months before getting their invoices out to their customers. This sends an implied message to customers that you don’t care about getting your money.
Also, make sure that you have appropriate systems in place to keep track of debtors and follow through on payments due. Allowing outstanding debtors to fall through the cracks can put enormous strain on your cashflow.
Bookkeeping Mistake 14. Paying incorrect employee super contributions
Superannuation Guarantee is the official term for compulsory superannuation contributions made by employers on behalf of eligible employees. An employer, regardless of whether they are a small or large business, must contribute the equivalent of 9.5% of an employee’s ordinary time earnings.
Bookkeeping Mistake 15. Missing deadlines for PAYG or BAS
Missing the deadlines for PAYG or BAS puts unnecessary pressure on you and your business. Check out the Due date here.
These costly bookkeeping mistakes can happen to anyone. At least one of them will probably happen to you at some point in your business. So try to seek out information, prepare accordingly, and be on the lookout for warning signs. Your bottom line will thank you.
