Mistakes made by Small Businesses during Bookkeeping

[Ishita Ramani]

Introduction

Bookkeeping could seem like a routine, boring chore as compared to the overall attraction of running and owning a small company. However, it’s an essential procedure that needs to be followed precisely to maintain the sustainability and achievement of your company. You have to be aware of the traps that can harm you in order to escape the financial challenges that accompany inadequate bookkeeping. This article provides a general overview of bookkeeping for small businesses and highlights the top 8 bookkeeping errors that small businesses make.

What is Small Business Bookkeeping?

The process of precisely recording every business transaction is known as bookkeeping. Bookkeeping has many advantages for management and business experts. It supports precise reporting of data for compliance, business tracking, and decision-making for general corporate growth. Bookkeeping is the first step in accounting.

What are the common mistakes made by small businesses during bookkeeping?

The following are the common mistakes made by small businesses during bookkeeping:

1. Not Keeping Up a Record Backup

Bookkeepers now have relatively easy jobs because of developments in cloud technology over time. The days of preserving important records on paper are long gone. These days, cloud hosting is a more sensible and safe choice. Cloud hosting does a great job of ensuring that your data is accessible all the time, but there can be a few problems you run into. First of all, you might not be able to access business reports, statements, and other important documents that are saved on the cloud due to technological difficulties. Furthermore, you must always take cybersecurity concerns seriously. For this reason, you should maintain a digital or hard copy backup of each document.

2. Sales Tax Ignorance

Ignoring and not reporting sales tax is one of the most expensive bookkeeping errors made by small business owners. Penalties and fines may be incurred for failure to collect and report sales taxes. An inaccurate sales total and, therefore, an improper amount of sales tax due might arise from inaccurate data entry. Collaborate with your bookkeeper and accountant to guarantee that your firm pays the correct amount of sales tax on time.

3. Proceeding independently

Despite their hatred of it, many small business owners insist on managing their own books. It can be quite helpful to hire a capable bookkeeper to handle the books because they can do the task quickly and effectively and can offer a second set of eyes to observe mistakes and offer suggestions.

4. Unable to monitor reimbursable costs

Small business owners usually use their own personal credit card or pay for bills out-of-pocket before failing to keep track of them. They subsequently neglect to provide the employer with the expense reports for payment. This causes a disparity between the amount shown as a balance and the real one.

5. The inability to Classify Employees Clearly

The majority of small companies use independent contractors alongside staff members. If this applies to you, make sure you categorize them properly. Making a mistake here could lead to over payments and inaccurate tax filings. As a result, the employment status of your staff will constantly be recognized and made clear.

6. Failing to match the bank statement and the records every month

The reconciliation of the books and bank statements is an important component of bookkeeping each month. However, some companies fail to follow this protocol, and others make a mistake by failing to follow it precisely. For this reason, bookkeeping tasks must be outsourced.

7. Incorrect classification of Income and Expense

This mistake could be made if you assign your bookkeeping to someone who is not familiar with official bookkeeping processes. One common mistake is to count transfers as income even when they are non-business transactions that don’t affect your profit or loss. You must accurately differentiate between revenue and expenses and keep the appropriate records if you want to make sure you see the correct amount of profit. When you treat every income and cost category correctly, you can reduce your tax liability.

Final Thoughts

Yes, one of the most important components of the success of a company is bookkeeping. However, simple bookkeeping mistakes cause financial difficulties for a lot of small business owners. We hope that this information can help you avoid such errors when keeping your company’s books up to date.