Avoid These 8 Common Small Business Bookkeeping Mistakes
While it’s definitely not one of the more fun parts of the job, bookkeeping is the backbone of any successful small business. Keeping accurate financial records ensures that your business remains compliant with tax regulations, provides insights into your financial health, and helps you make informed decisions.
However, despite its importance, many small businesses fall into common bookkeeping traps that can have detrimental consequences.
Here are the top bookkeeping mistakes small business owners make when handling their company’s finances and how to avoid them:
- Failing to Separate Business and Personal Finances
One of the most common mistakes small business owners make is mixing personal and business finances. According to a recent Intuit QuickBooks survey, a whopping 70 percent of small business owners admitted to having used a personal credit card to pay for business-related costs.
This can create a tangled web of transactions leading to miscalculated taxes and potential legal issues.
Always maintain separate bank accounts and credit cards for your business to keep your financial records clean and precise.
- Neglecting Regular Reconciliation
Regularly reconciling your accounts ensures that your financial records, such as bank statements, match your internal accounting records.
Neglecting this task can result in unnoticed discrepancies, making it difficult to identify errors or fraud.
Schedule monthly reconciliations to stay on top of your finances and catch any issues early.
- Ignoring Small Transactions
As a small business owner, you’ll usually have to wear many hats and you can be caught up in the madness.
As such, it’s easy to overlook small transactions, but they can add up quickly. Failing to record these expenses can distort your financial picture and lead to inaccurate reporting.
Use accounting software to track all transactions, no matter how minor, to maintain a complete and accurate record.
- Not Backing Up Financial Data
Many business owners often overlook this critical aspect of bookkeeping.
Data loss can be catastrophic for any business.
Ensure you regularly back up your financial data to avoid losing critical information due to hardware failures, cyber-attacks, or other unforeseen events. Consider using the good ol’ paper backup or cloud-based accounting software that automatically backs up your data.
- Mis-categorizing Expenses
Accurate expense classification is crucial for financial reporting and tax purposes.
If you delegate your bookkeeping to someone unfamiliar with formal bookkeeping practices, they are likely to misclassify expenses. This can lead to incorrect financial statements and potential issues with the IRS.
Use bookkeeping software to categorize your expenses correctly, and consult a professional if you’re unsure.
- Overlooking Tax Deadlines & Obligations
Without proper planning, dealing with taxes can be a major headache for your small business.
Small business owners must fulfill various tax obligations, such as filing tax returns, paying business taxes, and submitting required tax forms by set deadlines.
According to the QuickBooks research, less than half (48 percent) of small business owners were confident about paying taxes properly. Missing tax deadlines can lead to interest charges and penalties.
Stay aware of all relevant tax deadlines, including estimated tax payments, payroll tax filings, and annual returns. Use reminders or an accounting calendar to ensure you never miss an important date.
- Underestimating the Importance of Training
Bookkeeping software and regulations are constantly evolving.
Underestimating the importance of training can leave you behind the curve.
Invest in regular training and stay updated on the latest accounting practices and software updates to keep your bookkeeping accurate and efficient.
- Failing to Seek Professional Help
Many small business owners often neglect to seek professional bookkeeping and accounting help. Instead, they either handle the work themselves or rely on someone inexperienced to manage it.
While DIY bookkeeping can save money, it can also lead to costly mistakes.
Don’t hesitate to seek professional help when needed. An experienced professional bookkeeper or accountant has the necessary skills to do the job quickly and efficiently. They can provide valuable insights, ensure compliance, and help you make informed financial decisions.
The Takeaway
As a busy business owner, avoiding these common bookkeeping mistakes can save you time, money, and stress.
We understand that most small business owners prefer to focus on their passion —growing their business — rather than getting bogged down with accounting and legal requirements.
If bookkeeping isn’t high on your list of priorities, McDonald Bookkeeping Services is here to help.
Contact us today to learn how we can support your business’s success!