Business owners often make bookkeeping mistakes during the first years of operation. While you may not have the money or the time to study accounting, you can still avoid these common mistakes that can put your company in danger. That’s why we’ve put together a list of five common mistakes business owners make when doing their own bookkeeping.
Putting Things Off
As a business owner, you’re busy running your business. That’s why a lot of business owners procrastinate when it comes to bookkeeping. Of course – you need to prioritize and when choosing between bookkeeping or serving clients, it’s pretty obvious what the priority is.
However, putting off your bookkeeping for too long can have consequences. At one point or another, you’ll need to get caught up so that you can meet important tax deadlines. Being behind also means that you won’t have a clear picture of how your business is performing. Information is key to running a successful business. Without up-to-date books, you won’t have the financial information you need to make good decisions.
Using Incorrect Categories
When you’re working through your financial records, you will need to set up categories to organize your transactions. There are best practices for structuring and categorizing expenses that you may not be familiar with. There are also categories that have to be tracked separately for tax purposes.
If your categories are not organized in a logical way, you can end up in situations where it isn’t clear which category an expense should go to. For example, should software costs be office expenses or advertising expenses? Should you have a separate category for software costs? Well – it depends. The key is to have categories that are clear so that you consistently categorize those expenses without having to think too much about it.
Before you dive into the world of bookkeeping, take some time to think through the categories that you’ll need. Make sure it’s clear which transactions should go in which category. You can do this by giving categories clear and simple names. This will help you when it comes to getting your taxes filed, as well as looking over reports to understand your financial performance.
Throwing Away Receipts
Think before you throw away a receipt for a business expense. If you’re audited, you will be happy to know that you’ve saved all your receipts. An easy way to store your receipts is to convert them into electronic format so you can easily retrieve them when needed. We like to use an amazing software called Receipt Bank. This allows you to quickly take pictures of receipts, and send them directly into your accounting software.
Failing To Separate Business and Personal Expenses
A best practice for business finances is to keep business and personal expenses separate. The easiest way to do this is to have separate bank accounts and credit cards for your business. If not, you’ll have to go through all of your bank and credit card statements to pick out personal expenses and/or business expenses, which is a time consuming exercise.
Trying To Do Everything
When starting a business, it almost always begins with the founder doing everything themselves. That’s because the business is in the early stages; you have time to do your bookkeeping, inventory management, invoicing, marketing, customer service, and everything else that comes with running a business.
Eventually, your business grows, and you don’t have time to do it all yourself. The first thing most business owners tend to push to the side is accounting and bookkeeping. They know it’s important. They know it has to be done eventually. But they simply don’t have time. As time goes on, the problem gets bigger and so does the stress that comes with it.
One of the first and easiest things for a business owner to outsource is bookkeeping. Delegating this particular task to a professional will help you avoid errors, ensure you are meeting your tax requirements, and getting up-to-date financial information about your business. Imagine how much more you could get done if you didn’t have to worry about bookkeeping?
These are the common bookkeeping mistakes you should avoid. Your business finances must be accurate and up-to-date, so you need to consider hiring a professional to help you out. Many online accounting firms can help you with your bookkeeping, so don’t try to skimp on this aspect of your business. It could be costly when you don’t know how to do it right.
Hire one of the best online accounting firms in Halifax, NS. Here at Kinden CPA, you can look forward to stress-free accounting through our top-tier accounting services. Contact us today.