5 Bookkeeping Mistakes That You Can't Afford to Make
Let's face it--bookkeeping can be extremely boring and mundane for a business owner. While it is certainly not the most thrilling task on your to-do list, it is usually overlooked as your greatest source of information regarding how to grow and manage your business. If you know how to harness the financial information that your bookkeeping reports provide, then you can confidently direct your business to reach your goals. These are some of the most common bookkeeping mistakes that prevent you from reaching your goals:
- Not reconciling your bank accounts: This is one of the fundamentals of good bookkeeping, yet there are still many business owners who don't do it. Reconciliation of your books and bank statements is paramount to keeping accurate, timely financial records and providing you with an accurate picture of your current financial standing. Solution: Reconcile, reconcile, reconcile! If you do your own bookkeeping, make the commitment to doing this task each month at the very least. If you have a bookkeeper who is not reconciling in a timely manner, you should seriously consider finding a new bookkeeper. A great bookkeeper is one who stays on top of your books and consistently provides you with the communication and financial statements to prove it.
- Poor communication with your bookkeeper: If your bookkeeper is not informed of the goings-on within your business, he or she cannot accurately keep your books. Your business needs accurate financial records and statements in order to create budgets, plans for growth, etc. Your bookkeeper should also be effectively communicating with you regarding the status of your books. Solution: Always keep your bookkeeper in the loop! This includes notifying him/her of all purchases, providing receipts, notifying him/her of bonuses paid out, etc. It is even helpful to share your vision for your business. A bookkeeper who understands your goals is better equipped to help you reach those goals. On the other hand, if your bookkeeper is not responding to you in a timely or effective manner, it's time to seek out a new bookkeeper.
- Not separating business and personal finances: So many small business owners allow their personal and business finances to co-mingle. Whether your business is large or small, always (always, always, always) keep your finances separate. This makes your taxes much less complicated. It saves you money and time. It saves your CPA time too. And, heaven forbid, if you should be audited, your audit will be so much less stressful when your business finances are in top shape and neatly separated from your personal finances. Solution: Open a business checking account and use it only for business transactions. Use a business credit card. Again, use the credit card for business transactions only. When tax time rolls around, all of your financial records will be ready to go-- which is so much easier than trying to remember whether a transaction from 6 months ago was business or personal. And it warrants repeating--should you be audited, you can easily prove your business expenses to the IRS.
- Missing important tax deductions: Improperly categorized expenses and unrecorded expenses lead to your practice shelling out much more money in taxes. Solution: Create a bookkeeping system that captures all of your tax deductions and make sure that your bookkeeper knows how to properly categorize your expenses. Make your tax breaks difficult to miss!
- Not keeping those receipts: It can seem like a hassle to keep track of receipts for all of your purchases--and it is--but you definitely need to keep them in the event of an audit. Should you be audited, your awesome record keeping ability will save you from potentially enormous tax penalties. Solution: Create a record keeping system that helps you keep track of your receipts. You could also download an app on your phone to take photos of your receipts and then upload them to your bookkeeping software--whatever is easiest for you!
If you're making any of these mistakes, rest assured that they're easy to fix! It can be time consuming to establish good bookkeeping systems, but once you do you will begin to reap the rewards. Staying on top of your financial situation will provide you with a clear picture of your business's current standing and how to reach your goals for the future. If you aren't making any of these mistakes, give yourself a pat on the back!