6 Common Bookkeeping Mistakes
6 Common Bookkeeping Mistakes Made by Small Business Owners
Becoming a business owner leads to many great benefits, such as flexibility and control over your day-to-day schedule. However, many small business owners struggle to properly maintain the bookkeeping function of their business. The bookkeeping in your small business is essential for success, calling on the need to understand and avoid these 6 common mistakes.
Mistake #1: Neglecting Monthly Reconciliations
The first mistake small business owners make is neglecting monthly reconciliation procedures. Monthly reconciliations include, reconciling the cash and credit card accounts and reviewing financial statements. Many business owners get so caught up in other tasks that these items are left for year-end. However, monthly reconciliations can give your business transparent insight into operations, allowing for business growth and more informed decisions.
Mistake #2: Setting up Vendors and Employees Incorrectly
Without the proper experience and knowledge to differentiate between the groups of people your business pays, you may end up misclassifying someone. Self-employed individuals and employees are paid differently with the Canadian Government requiring you to withhold taxes for your regular employees. In addition, vendors need to be classified properly to ensure accurate reporting on the financials and tax return.
Mistake #3: Doing the Bookkeeping Without a Software Program
Many small business owners try and get by without investing in an accounting software program, which opens the door to errors and mistakes. There are hundreds of software programs to choose from that offer different features and services, such as payroll processing and reporting. Attempting to keep track of everything by hand subjects your business to an increased risk of fraud, asset misappropriation and inaccurate reporting, all of which can be costly to fix.
Mistake #4: Mixing Business and Personal Expenses
Businesses set up as a sole proprietorship need to pay close attention to which expenses are business related and personal when completing bookkeeping. Frequently mixing business and personal expenses may subject your personal assets to the court in the event of a lawsuit due. In addition, if the Canadian Government audits your business and finds personal expenses reported on the business return, you could be liable for back taxes with fines and penalties imposed. As a result, you want to be sure everything is reported in the proper place when completing bookkeeping procedures.
Mistake #5: Poor Receipt Retention
One way small businesses see success with business and personal expense separation is through keeping receipts. Every purchase your small business makes should be backed by a receipt. This not only allows for proper classification in your accounting system, but it also supports your expenses in the event of an audit.
Mistake #6: Not Hiring an Expert
A crucial mistake small businesses make is not enlisting the help of an expert. A qualified accountant, like Faber LLP, understands the rules and regulations your small business is subject to. As a result, they can provide accurate and timely bookkeeping procedures that reduce mistakes and errors in your accounting function.
Understanding common bookkeeping mistake that small businesses make can help you avoid them within your own business. If the bookkeeping function in your business is becoming a burden, reach out to Faber LLP. The knowledgeable team at Faber LLP can ease this burden, freeing up time in your busy schedule.