Post Date: 25-08-2022
Common bookkeeping mistakes that can be the downfall of your business
Congratulations! You have a successfully running business and now you get to be your own boss. While you must be over the moon to see your ideas come to reality there is also a huge set of responsibilities that comes with entrepreneurship.
Product creation, marketing, continuously improving your product, getting the audience aware of your brand, keeping tabs on your transactions, making sure your finances are in order, and so much more goes on behind a successfully running enterprise.
As a boss, you have to be on top of all these tasks to avoid any hiccups. While everything else is important, bookkeeping often gets ignored in the process.
Ensuring your books are in order is crucial as it can be the difference between making a profit and facing a loss. In this article, we will take you through some common bookkeeping mistakes that you should keep checking on.
Common bookkeeping mistakes to avoid
Make sure your business soars high by avoiding these common bookkeeping mistakes
Lack of a proper business plan
Building a strong business plan is essential before the launch of your business as it would help in ensuring that the business runs smoothly and effectively.
Your plan should ideally include your financial goals and bookkeeping process. This helps you to be on top of your financial goals and keep a check on when certain financial deliverables should be ready.
Since you already have a lot on your plate, assign a person or a team to manage your books. A clear-cut bookkeeping schedule not only helps you be better prepared but also keeps your business from going under.
Combining business and personal accounts
In the initial phase of your business, you will be tempted to use the same credit card or bank account for both business and personal use.
This might be convenient but leads to messy bookkeeping since you might lose track of essential business transactions. This can often lead to delays during the audit period. Avoid all these issues by opening a separate bank account for business early on.
Make your books much more accurate and easier to be maintained. Small mistakes like these can cost heavily and can lead to the downfall of your successfully running business.
No employee classification
Bookkeeping involves much more than inventory and raw materials.
A bookkeeper should also keep a track of the different kinds of employees the business has employed on the payroll.
Largely, there are two main types of employees - full-time workers and independent contractors.
It is advisable to keep track of everyone’s employment status so that during tax season, there wouldn’t be any issues while filing taxes.
These small things will eventually lead to a failproof bookkeeping system that will become the backbone of your business.
Behind every thriving business is a well-built bookkeeping system that keeps a holistic check on finances.
Failing to account for sales tax
Another common bookkeeping mistake is forgetting to consider petty cash. For instance, if you work in retail and have to add sales tax to your goods or services, make sure that you remember to take it off again when measuring the total revenue. Failing to do so can give a misleading impression of how the business is performing.
While this is a fairly common mistake, this can cause your business a considerable amount of money. This small oversight can often lead to fines and penalties that might end up hurting your profits.
The best way is to familiarize yourself with sales tax to avoid forgetting or neglecting to file aspects of business that are non-negotiables.
Not backing up the data
By now we have established that bookkeeping is absolutely essential but it can also be challenging for a lot of people - even those who have been in business for a long time now.
If you don’t completely understand the nuances of bookkeeping, it is possible that you may end up missing or deleting an essential piece of data. Which makes having a backup of all your files crucial. If possible, try to keep both physical and soft copies of all your books and invoices. In case, your computer wipes out all the data, you will still have backup files to keep maintaining the books without going through any trouble.
Mediocre organizational skills
Record-keeping problems are more common than we realise when it comes to small businesses. Especially if you have just started and have a small team handling all the tasks, the responsibility to maintain records falls on the owner.
This means tracking finances, keeping stock of inventory, and managing employees on top of running your business. There is only one way to bring some order to this chaos - staying organized.
It is best to lay down a plan where you figure out how you would file your receipts and what strategy you would utilise to keep a tab on them. Taking some extra help from technology and accounting software can come in handy to take your organization skills from mediocre to extraordinary.
Not allotting proper budgets
Do you initiate a project without allotting the proper budget to it? Starting a project without any budget plans in mind is highly risky as there are sure-shot chances of you ending up splurging more than intended. Failing to create a budget also makes it difficult for you to keep a tab on your expenditure.
These ultimately lead to bad decision-making and bearing losses. The best way to move forward is to allocate budgets to projects that promise enough in terms of revenue. As a small business owner, ensuring that your cash flow is transparent, organized, and within the budget is a must.
Keep your bookkeeping mistakes in check
Undoubtedly, you will come across one or more of these bookkeeping accounting mistakes during the course of running your business. But now you have enough information to identify these issues and resolve them before they cause any harm to your business.
Don’t let poor accounting practices adversely affect the financial health of your company. Make sure that you learn to account thoroughly and if numbers are not your strong suit, hire a professional to help you out. Always keep an eye out for the possible red flags and let nothing stop you from turning your business into a huge success.