Most bookkeeping errors arise due to a simple lack of time or knowledge. When armed with the right information and the right tools, you can keep bookkeeping errors at a minimum. Learning what to do–and what not to do–with your books can help ensure your business has a stable foundation for growth and prosperity.
It’s easy to push your bookkeeping responsibilities aside–especially when you’re not confident you’re doing your books correctly. However, if you wait until year-end to start recording and organizing, you’re setting yourself up for a lot of stress–and a lot of errors. But bookkeeping is so much easier when done in real-time.
The Fix: Take some time every week to record your income, expenses, payroll information, and other important bookkeeping transactions. Set aside a designated time for bookkeeping tasks each week and make it a habit. Soon you’ll push procrastination out the window and help ensure your business bookkeeping is an easy task.
Outsourcing your bookkeeping to a company like BooXkeeping is a great option if you don’t have the time to stay on top of your bookkeeping in real-time!
2. Using The Wrong Accounting Tools
You wouldn’t use a hammer to do a screwdriver’s job–well, at least you shouldn’t. In the same way, you want to avoid using the wrong programs and tools for handling your books. Tools like Excel work when your business is very small but eventually, you need to upgrade to real accounting software, such as Quickbooks. And then one day you may even outgrow that.
The Fix: If you aren’t sure what software to use (or how to use it) get with a professional accountant and see what they recommend. Take the trainings offered by the software company and get comfortable with the service.
If you’ve outgrown the ability to keep your own books there are companies like Booxkeeping to help business owners like you.
3. Throwing Away Receipts
Don’t throw away those receipts!! I know it seems tedious to manage your business expense receipts. However, you’ll sleep better knowing you keep your receipts in order–especially if you get audited. Receipts prove you spent the money and you can make notes right on the receipt about why you incurred this cost. For example, if you take a client out for dinner, write their name and topics of discussion on the back of the receipt.
The Fix: Keeping and organizing business receipts doesn’t have to be difficult or time-consuming. You can simply take a picture of the receipt and store it in Dropbox–all right from your phone.
4. Mixing Personal And Business Expenses
As far as the IRS is concerned, it’s vitally important to keep personal and business expenses separate from one another. But it’s not just important to the IRS, keeping your business and personal accounts separate let’s you know exactly how your business is faring financially. It’s difficult to know if you are making money when you are spending your revenue on groceries and buying business supplies with your personal debit card.
The Fix: Separating your business expenses from personal ones means having separate bank accounts for your business. That way there’s no question about whether a purchase you made was a business purchase or a personal purchase. Income from the business goes directly into the business checking account and all expenses are paid from there as well. This makes it very clear if your business is making money or not.
Take a regular salary for yourself out of your business checking and put it into your personal checking for your personal expenses.
5. Missing Out On Deductions
It’s easy to miss out on lesser-known deductions for your business. For instance, if you work from home, you may be able to deduct part of your housing expenses on your business tax return. Inventory, depreciation, and business structure can all impact your taxes.
Specifically, how you categorize inventory can make a big difference in what your year-end tax record looks like. In fact, if your business has inventory, then you probably need an accountant.
You may not know about all of the deductions you’re entitled to as a business owner, however, a good accountant can tell you. They can make sure you are making the most of your money regarding depreciation or inventory management.
The Fix: Get a good accountant to help you wade through the IRS lingo for maximum deduction benefits.
6. Not Backing Up Your Books
Not backing up your books is another of the most common bookkeeping mistakes. The last thing you want to do is to work hard at keeping good records, and then have all of your data disappear with no way to get it back. The first step to properly backed up records is to find and use a good accounting software program.
The Fix: Most accounting software is cloud-based these days. If you are using a cloud-based service they are keeping up with those backups for you. However, if you are using something that is housed directly on your computer then you will need some kind of backup. And don’t back it up onto the same hard drive where it lives. Save the backup file on an external hard drive or flash drive.
At BooXkeeping, we keep all of your data backed up so it will not be accidentally lost.
7. Improper Categorization
Not categorizing your expenses in their proper place can lead to an overall unawareness of business health. In order to properly run a business, you need to know where the money is coming in from–and where it’s going out.
For instance, you should have separate expense categories for business insurance that is meant to protect your business and health insurance for your employees. This is because business insurance is a business operating expense and health insurance for your employees’ counts as an employee benefit.
The Fix: One fix is to hire a qualified bookkeeper to do the categorization work for you. An bookkeeper can help you organize your business in a way that ensures you’re operating from a categorically correct standpoint.
8. Not Recording Income Properly
It’s easy to forget to record every income transaction. This is especially true when you’re dealing with smaller transactions or cash transactions. However, it’s vital to run all of your business income both through your business checking account and through your business records.
Note that you can be subject to heavy penalties by the IRS for failing to report all income transactions.
The Fix: Use a tool like Quickbooks to accurately keep track of all income, and be sure to update your records as the income transactions occur so that nothing gets lost in the day-to-day busyness of operations.
For instance, update your income (and expense) logs at the end of each day. Having a system in place that works to help you stay organized at work will help ensure you don’t forget any of your business transactions.
9. Not Knowing When It’s Time To Seek Help
At the end of the day, it’s important to realize when it’s time to delegate your bookkeeping duties to a qualified professional. Sometimes a business has simply grown too big for management to handle bookkeeping on their own.
You know this is the case when you are unable to keep up with your books on a regular basis, or you are feeling unsure about what you are doing. Or maybe everything is going fine, but you are looking to free up some of your own time. Bookkeeping is an easy thing to outsource.
BooXkeeping is here to help – Contact Us to learn more.