Business bookkeeping is the foundation of any company’s financial success and it requires plenty of attention to detail to ensure it’s done properly.
Mistakes, oversights, and not completing key tasks can cause a wide range of problems, like missing opportunities to save or overspending.
In this article, we’ll cover some of the top mistakes businesses make, so you can prepare to avoid them.
Common Business Bookkeeping Mistakes
Inaccurate Record Keeping
Proper record keeping is an essential part of ensuring every report is accurate. A mistake of just a few pennies can lead to unbalanced accounts and inaccurate reporting.
Yet, receipt and record-keeping failures are some of the most common reasons for inaccurate tax filing and audits.
Recording and double-checking all financial transactions to ensure they were entered into the accounting software properly will help minimize these risks.
Not Classifying Employees Correctly
Proper classification of employees ensures the right taxation.
As a small business, you may have many full-time and part-time employees that you pay by check.
However, if you are using independent contractors or third parties for some of the work, you may not need to collect taxes on them.
Know the difference in your employees and what factors play a role in whether they are legally considered employees or not.
Reconciliation needs to be done consistently and is often tedious and time-consuming.
If you don’t take the time to verify that your bank statements and books match, problems could compound month after month until it becomes difficult to track.
Completing this task properly and promptly will provide you with accurate information that can be used to better understand the financial state of your business.
Mishandling Sales Tax
Sales tax laws differ between states, but if your state requires that you collect a tax on the products and services you sell, and you fail to do so, it can result in fines and fees down the road.
Accounting for your sales tax is the first step, and the second is ensuring you are reporting it to the appropriate agency in a timely manner.
Mistakes related to total sales or improperly taxing some goods or services can lead to costly fines.
In some states, where taxes differ from county to county, or in businesses selling online, you need to ensure you have an accurate, efficient system for managing your sales tax collection.
Unorganized Chart of Accounts
It is not uncommon for companies to have an unorganized chart of accounts, which often leads to duplicate categories or even failing to enter data into the appropriate categories.
If you have too many categories, this can easily occur, and when it does, it can prove to be a financially difficult situation. However, narrowing it down too far can also limit your scope and clarity.
If you’re entering data and you’re unsure which category to use, that’s a good indication you need to re-organize your chart of accounts.
Throwing Away Receipts (Even the Small Ones)
Small purchases, like paper for the printer or not calculating miles on your business car, can all be valuable reimbursements and dedications later, depending on your business.
Yet, many businesses don’t do a good job of tracking all of their receipts. Make it a process to do this to ensure each one of those receipts is carefully considered to ensure they can be reported later.
Expenses are not just categorized and managed for taxes but also for organizing project expenses and tracking cash flow. If you are not accurately keeping all of these data in an easy-to-access manner, there’s no true way to understand how much any project is costing you.
Every day there is a to-do list and every day, some of today’s tasks become tomorrow’s problems. Yet, falling behind in your bookkeeping makes it far more difficult to get caught up, and often it leads to:
- Inaccurate record keeping
- Missing, but valuable, data
However, your time is spent better when you are working with your customers or meeting business demands. No matter if you do the work yourself or hire a pro, someone needs to consistently be managing the books.
Not Calling on an Expert
Hiring a professional to handle your business bookkeeping ensures it gets done on time and properly. They’ll also walk you through some of the ways you can leverage the information in your books to improve your business’s financials.
It’s an investment that provides a clear benefit to your finances while also giving you the time you need to run your business.
At PlotPath, we offer bookkeeping services to handle the day-to-day tasks of managing your business’s finances. With our help, you can rest easy knowing everything is being recorded correctly and your books are up to date. We’d love to learn more about your business and help you plot your path to growth! Contact us today!