[Updated 19 January 2022]
If you operate a small business, maintaining complete and accurate accounting records is vital.
Studies reveal small businesses that are bad at bookkeeping are increasingly likely to fail than those with good records.
To help you, here are five common mistakes to avoid with your bookkeeping.
Mistake 1: Not Reconciling Your Accounts.
Accountants and tax auditors will undoubtedly scrutinise whether your accounting records and bank account match. Reconciling your bank and credit card statements should help confirm every transaction you’ve made via your bank account or credit card is recorded in your accounts.
Your accountant or tax preparer will have more work to do if your own records don’t match your bank account. This means means higher fees. If your records exclude expenses that could be claimed as tax deductions, you could also pay more tax than needed.
If your tax auditor doesn’t believe you’ve recorded things properly, they’ll spend more time examining your accounts, if you’re audited. Organise yourself and match and reconcile your records to your bank statement at least once per month.
Mistake 2: Tardiness.
Accounting can be a chore when you’re tired after a long and hectic day at work. But managing and updating your bookkeeping regularly will help prevent you spending hours uncovering details that you’ve overlooked.
Mistake 3: Forgetting Cash Payments.
Small-business owners commonly pay business expenses using their own cash and don’t keep records. These small, regular expenses, can add up to hundreds or even thousands in hidden tax deductions.
Keep an envelope for cash receipts somewhere handy, so they can be added to your records. Get a receipt for all business purchases, and find a good bookkeeping system that makes recording cash payments easy.
Mistake 4: Recording Vague Transaction Information.
Small-business owners often take bank statements, receipts, or even computer records and have memory lapses when they meet their accountant. This can often be a business death-wish.
Add a description to every transaction when it’s fresh in your mind, especially transactions that won’t be obvious to other people, such as your accountant. You’ll make your year-end much less stressful, save time with your accountant, and give yourself peace of mind in case of a tax audit.
Mistake 5: Using Accounting Software Above Your Skill Level.
Most small business owners are not trained accountants. Many accounting programs require a level of accounting comprehension, so trying to master accounting software, can lead to mistakes.
Of course, you don’t have to try and become an accountant. There are many specialists to turn to, so you can get on with running your business successfully. A good virtual accounting service will be worth their weight in gold. They’ll save you money and give you more time to focus on your business.