Management Corner: Bookkeeping Mistakes Can Add Up for Small Businesses

BOOKKEEPING MISTAKES CAN ADD UP FOR SMALL BUSINESSES

When you started your business, working as a bookkeeper probably wasn’t your primary dream. Crunching numbers, working with spreadsheets, and rifling through receipts isn’t a job designed for everyone, especially someone who has launched a small business and wants to channel all their entrepreneurial energy into more glamorous tasks, such as marketing, business-building, or client relations.

Unfortunately, however, bookkeeping is a significant part of every business, whether you’re a one-person show or a Fortune 500 company.

Entrepreneurs should not underestimate the importance of bookkeeping. It’s usually one of the tasks that fall down on the priority list, but it is truly the heart of the company. Errors cost money, and any start-up business owner knows that money isn’t something you can spare, especially at the cost of something as avoidable as a bookkeeping mistake.

Small bookkeeping errors are common, but can add up quickly. Not saving receipts is one example. The IRS doesn’t require that business owners save every single receipt, but it’s wise to keep them all, even those smaller ones. Small-ticket items can prove useful if you ever need to provide backup documentation for your tax deductions. Saving receipts, large and small, is an essential part of doing business, but it’s also easy to lose track of them if you aren’t meticulous, organized, and mindful. Fortunately, when it comes to money and business-building, entrepreneurs need only forget these things a few times before they learn the err of their ways.

Another thing that small-business owners often forget is to keep track of all expenses that are paid out-of-pocket. When you’re shopping for your home, it’s inevitable that you will pick up a few items here and there for the office from time to time. Even when you charge those items to your personal credit card or pay for it with household money, it is still reimbursable and therefore needs to be tracked.

Here’s a few other ways entrepreneurs commonly slip-up with the books, and way to avoid these mistakes:

HANDLING THE BOOKS ALONE.

Small-business owners often want to work as their own bookkeeper because it saves money. However, having a competent and trained bookkeeper is definitely worth the money. Not only are they skilled in the trade, they also serve as an important “second set of eyes” for your finances.

NOT BALANCING THE BOOKS.

This error is all-too-common in households, as well as small businesses. The company’s bank statement needs to be reconciled with the books to ensure that nothing has been missed. Allow for too many oversights, and you’ll sell yourself short.

CLASSIFYING EMPLOYEES INCORRECTLY.

As a small business owner, you may find that it’s cheaper and easier to hire independent contractors or freelance employees, but be aware that the IRS has different filing requirements depending on what whether they are a “true employee” or a non-employee. Make sure you know who is considered a staff member and who isn’t.

NOT BACKING UP THE INFO.

Yes, we are in the Information Age in all its paperless glory – but when it comes to the books, paper is inevitable. Don’t rely solely on your computer to keep your financial records. Computers crash. Files get erased. Things happen. As we continue to rely more and more on technology, this is continually made clear.