If you are like most business owners, you set up your venture based on something you love. Your vision includes building the next great widget or delivering a service superior to your competitors. This passion, or entrepreneurial spirit, is what energizes you. However, there is another side of business that can drain you of this energy…Bookkeeping and Payroll. I have yet to meet a business owner who wakes up each morning excited with the idea of entering transactions into Quickbooks.
It’s no wonder that we often come across business owners who ignore bookkeeping altogether or are making so many errors that their financial statements are almost meaningless. We want to share the 7 most common bookkeeping errors we run across with the hope that you avoid making these accounting mistakes yourself.
- Failing to track all business related expenses.
Are you keeping track of the mileage for each trip to the office supply store? Do you often make purchases with your personal credit card and forget to assign the transaction to your business? Do you know the expenses you are entitled to claim for your business?
- Improper Employee Classification
Many small business owners will hire subcontractors, freelancers, and consultants and then may incorrectly classify them and the subject to possible IRS payroll taxes and penalties. As a result, they fail to file the proper forms because of the different regulations pertaining to employees and non-employees.
- Keep Your Backups to maintain an audit trail
You should maintain a trail of all your transactions including receipts, invoices, etc. for tax and/or accounting purposes. We recommend scanning these documents and backing up your digital data remotely.
- Not Reconciling with the Bank Statement.
This is basic accounting that should be done by businesses (and individuals) to make sure you capture all your expenses and incomes and to be aware of your balances.
- Improper use of Chart of Accounts.
This may be the most common error we run across. A smart business owner will make sure that the Chart of Accounts is set up properly from Day 1. A well thought out Chart of Accounts will help you (or staff) classify your data so you get a clean financial snapshot of your business. Many businesses use a generic chart of accounts that is not customized to their business needs. As a result, transactions are often assigned into improper categories.
- Hiring internal bookkeeper for something that often can be done for less cost by a professional bookkeeping department.
- You Do the Bookkeeping Yourself.
In our opinion, there is very little benefit of a business owner handling their own bookkeeping duties. Here’s why:
- Focus on why you started your business to begin with. I highly doubt that your business passion is rooted in bookkeeping tasks.
- Hire a professional and you’ll probably save money in the long run. Your time is money.
- You get an extra set of eyes to review your books. In the process, a professional CPA will also make suggestions and offer advise to help grow your business. Plus, you’ll have piece of mind knowing that a true professional is handling an important aspect of your business.