Are you worried, you messed up your books? It is Alright! Almost everyone makes at least one accounting blunder while they are learning the ropes. Thankfully, those can be easily fixed if you catch them early on.
Based on our experience at Elevar, we have identified common accounting mistakes (and fix) time and time again, along with our best advice on how to avoid them. Below are some of them:
Doing it all yourself
While money managing is certainly an important task, it’s not necessarily crucial for you to be the one to do it. In fact, if you do not have a strong background in accounting and business tax law, it’s probably advisable that you don’t handle your own bookkeeping. Delegating this task to a professional will help you find errors while freeing you up to work on your business.
Hiring an inexperienced bookkeeper
When it comes to hiring a bookkeeper, you get what you pay for. That bookkeeper you found online for $9/hour is worth, well… $9/hour.
Hire someone who has bookkeeping experience in your niche. They’ll have bookkeeping tips and tricks up their sleeve, specific to your industry. And they should be able to get your books done faster.
Elevar can be your last stop in the search of a bookkeeper for your business.
Neglecting sales/use tax
With many businesses, not reporting sales/use tax and not accounting for it is a common error in bookkeeping. Oversight in collection and reporting of taxes can result in significant fines and penalties. Alternatively, incorrect data entry may result in a higher total sales amount and overstated sales taxes due.
Failing to back up your data
While keeping hard copies of all your records is generally a thing of the past, don’t rely solely on cloud hosting to ensure your data is always accessible. Make sure your accountant or bookkeeper uses software with a fail-safe data backup system and consider keeping two or more digital copies of each record, one in the cloud and one safely and securely on your desktop or hard drive.
Petty cash nonchalance
Every small business that uses petty cash should have a dedicated custodian, who can manage it and approve purchases. This ensures accountability and limits the potential for fraud, theft, and abuse. To that end, businesses should have clear policies regarding petty cash purchases and every purchase made with petty cash should have an accompanying receipt for the expense to maintain clear documentation for deductions come tax time. The receipts and remaining cash should equal the original dollar amount designated to the fund. When the fund is exhausted, a check can then be written to cash to set up the full amount again. Not having a petty cash policy, custodian or receipts can create headaches for your bookkeeper and may result in serious problems when taxes are filed.
Waiting until the last minute
Since bookkeeping is a collection of small but numerous tasks that build up over time, it can be tough to tackle all at once. Leaving it to the last minute can cause stress and even anxiety, which can sometimes lead to significant mistakes in your books.
It is understandable, as accounting might not exactly be the most interesting part of running a business. That is probably why some business owners choose to do it only when financial reports are required.
The best thing you can do is set aside some time throughout the year to complete your books. Perhaps an hour every month for your accounting when you receive your monthly bank statements. That way you are spending an hour every month, instead of full days before a deadline.
Another reason to do your books throughout the year is so that you can get to know your finances and make better business decisions.
Take the time to invest some time in your bookkeeping today and your future self with thank you!
Mixing business and personal spending
So, you take a client for lunch, but you forgot your business credit card. Not to worry. You can just pay for it with your personal debit card, right?
In the heat of the moment, it might seem easy to pay for a business expense with personal funds. But in the long run, commingling your finances makes bookkeeping (and taxes) a bit of a maze. It can even remove a layer of legal protection if your business is audited or sued.
Here are some tips to help you keep everything in place:
•Manage your business finances in their own small business bank account
•Get a dedicated small business credit card
•Keep a small amount of cash in your business checking account to cover quick, miscellaneous business expenses
Of course, if you accidentally pay for a personal expense with your business card (or vice versa) it’s not the end of the world. You can reimburse your business account for the purchase or record the purchase as an “Owner’s Draw.” But why bother if you can avoid the hassle in the first place?
Throwing away receipts
If receipts get lost (or you throw them in the trash), you will not be able to back up the deductions you made on your tax return during an audit. You may also be slugged with a fine.
A few things to note about keeping receipts:
•Keeping digital records of your receipts are perfectly fine
•You may need to present receipts upon request if your business is audited
•To be safe, you should keep receipts for seven years
Take a picture of receipts on your phone and store them in Google Drive, Dropbox, or Evernote. Whatever is easiest. Alternatively, upload photos of your receipts to the accounting software you are using.
Also, be sure to record the details of every expense (especially for meals and entertainment). This will help you find your receipts easily and justify the deduction during an audit.
If you’re new to recordkeeping, grab a coffee and spend some time with our guide.