6 Most Common Bookkeeping Mistakes of Small Business – And How To Avoid Them
When you’re in business it’s easy to spread yourself too thin. There’s so much to think about and never enough hours in the day to get things done.
1. Using the wrong accounting method
There are two main accounting methods, cash accounting and accrual accounting. Cash accounting records the money for a sale or service when the money is received, whereas accrual accounting records revenue and expenses when they’re incurred. It’s important to know which method is right for the type and size of your business, and how and when to change this over. A qualified bookkeeper has all the necessary skills and experience to help you with this.
2. Combining personal and business finances
This is one of the most common bookkeeping mistakes we see people make yet it’s one of the easiest to avoid.
No matter how big or small your business, and regardless of turnover or profit, it’s absolutely crucial that your business and personal finances be kept separate at all times. One of the first things a new business owner needs to do is open a separate business banking account and deposit all business income into that account.
The problem with mixing up your personal and business finances are two-fold; on the one hand, you could be missing out on tax deductions, on the other hand, if you declare personal receipts as business expenses, you could potentially incur costly fines. Outsourcing a professional bookkeeper for a few hours each month will save you from headaches in the long run.
3. Not reconciling your books
Reconciling your books with your bank statement each month is one of the most fundamental aspects of bookkeeping. It simply means comparing the numbers on your books with your bank statement each month to ensure there are no discrepancies. If there are, they need to be dealt with right away.
A professional bookkeeper not only knows exactly what they’re looking for, they know how to deal with inconsistencies and can call the bank on your behalf if necessary. Leaving this to a qualified professional will ensure it’s done properly and you’ll avoid major financial problems later on.
4. Not properly managing your petty cash
It’s good practice for small businesses to keep petty cash on hand to cover minor expenses related to the business. But just because the amounts are small doesn’t mean they don’t need to be accounted for properly. A bookkeeper can set up a simple yet rigorous system for managing your petty cash to ensure small losses ‘here and there’ don’t add up to a lot at the end of the financial year.
5. Misclassifying employees
There are several different categories of workers: full-time, part-time, and temporary employees, as well as independent contractors, such as freelancers and consultants. Classifying your workers in the wrong categories can be extremely costly as these categories determine who is eligible for employee benefits. A fully qualified bookkeeper can help identify the correct categories and ensure your records are accurate and inline with your taxation requirements.
6. Not seeking help
It can be very tempting to try to cut costs and do the DIY method of bookkeeping. However, without the expertise offered by a professional, things can often get messy. Not knowing when to seek the assistance of an expert can lead to business failure.
A professional bookkeeper’s know-how and experience can help to keep your finances in line, maintain a healthy and steady long-term strategy, and keep your business on track.
Want to know more?
We can help with all your bookkeeping needs. Call us today for a chat and a free bookkeeping analysis for your business. We’re in Adelaide Australia on (08) 8330 4061 or email us here.