Many business owners see bookkeeping as a ‘necessary evil’. This is especially the case for small businesses which may not be able to employ a full-time bookkeeper or outsource the work.
Many people find it tedious and time-consuming. That is why it is estimated that more than half of all small business owners fail to keep their finances up to date.
But that is a mistake. Ensuring you are on top of your finances is crucial to managing and growing a business of any size.
By accurately and consistently measuring your finances – or staying on top of the bookkeeping, to put it another way – we can effectively manage and expand our companies.
Perhaps more importantly, we can also avoid mismanaging our cash flow and finding ourselves unable to pay our bills.
Five Common Bookkeeping Mistakes
Combining Business and Personal Expenses
When your company is new, you may use your personal bank account or credit card for business purchases. You may also use business funds to make personal purchases. Because you will have to sort out all of these transactions later, this leads to sloppy bookkeeping. You may also lose track of business expenses, leading to missed tax write-offs. You can avoid this problem by opening a separate business bank account. Your books will be much more organised and easier to maintain.
Inconsistent Reconciliation
Matching your books to your bank statement is known as reconciliation. It entails reconciling any discrepancies between your bank transactions and your accounts. The goal is to keep your books up to date to be aware of your financial situation. Monthly reconciliation is recommended, but remember, the longer you wait between reconciliations, the more difficult it may be to keep an accurate picture of your company’s finances.
Discarding Receipts
Most of us throw away receipts after purchasing items. While this is acceptable for most personal purchases, keeping receipts for business expenses is critical. If you save your receipts, your year-end expenses can be more easily included when preparing your taxes. Furthermore, if your tax return is queried, you’ll have all the documentation you need to prove that your expenses are correct. Keeping receipts simplifies your bookkeeping duties. If you make any purchases, you can use your receipts to ensure that your expenses are properly classified.
Incorrect Expense Categorisation
Many business owners who do their own bookkeeping have incorrectly classified expenses. This can happen due to typos, a lack of understanding of expense types, or failing to categorise expenses. Make a habit of regularly re-evaluating your expense categories, updating them as needed, and double-checking your work. If this responsibility becomes too difficult or confusing, it is good to seek assistance from a professional bookkeeper or accountant.
Doing It Yourself for an Extended Period
If you want to grow your business, you’ll need to delegate bookkeeping duties sooner rather than later. As your business expands, your bookkeeping becomes more complex. Your time as a business owner is usually best spent on the company itself, not in the back office. Hiring a certified bookkeeper will allow you to focus on growing your business while saving time and avoiding costly mistakes.
Conclusion
Do any of these common mistakes apply to you? If so, try and remedy them as soon as you can.
Making simple changes in how you approach your bookkeeping can turn a seemingly mundane activity into a valuable asset for growing your business.
