7 Common Bookkeeping Mistakes That Can Hurt Your Business
Starting, operating and sustaining a business reveals its challenges at the best of times. But have you ever pondered how you'd bounce back if you or a co-owner began to make critical mishaps costing your business and ultimately, your livelihood?
Too often we see entrepreneurs spring up amidst a ferociously competitive business world, only to witness their doors closing within the first 12 months of opening due to a lack of finance-handling skills.
With some admirable advice, a bit of prior business management experience and perhaps a few tips from our Profit First Guide, a number of these dream-crushing problems can be 100% avoidable.
The Profit First concept is a beneficial guide designed to help your business become more profitable sooner. Find out more about our Profit First packages and assessments today.
Here's our top seven most common bookkeeping mistakes that can really damage your business from an accounting perspective:
1. Mismanagement of reimbursables
Not keeping track of reimbursable expenses is a mutually shared issue among business owners the world over. Every reimbursable you fail to account for is cash simply lost, which begins to burn a hole in the hip-pocket super-fast.
A lump sum at the end of the year is not all you’re losing either, but rather the additional income in the way of further tax deductions too.
Record these with an expense-tracking app or other software as soon as they’re accrued to ensure you’re never forking out money and not seeing it again.
2. Misidentifying employees and contractors
Categorising and defining all your individual business relationship as either an employee or contractor is extremely important as tax and other obligations vary incredible for each.
With modern working arrangements and business models now so diverse, business owners today are financially connected through a range of creative methods that can seriously complicate your clarification.
Hefty penalties and other issues detrimental to a business often emerge from this misidentification. It’s best to consult a bookkeeper or accountant for a professional determination and to avoid potentially jeopardising your business’s integrity.
3. Underestimating the importance of petty cash accountability
Remember when your assistant took $40 from petty cash to purchase a cake for a co-worker’s birthday back in November? Of course not.
The words ‘petty cash’ may imply that it’s of less significance, however from a bookkeeper’s point of view, these forgotten expenses that you’re so easily detached from can end up turning into an accounting nightmare over a full financial year.
It’s wise to appoint a dedicated petty cash ‘manager’ to track withdrawals as they occur and make sure things remain balanced.
4. Failing to save every receipt
Receipts are ultimately the backbone of the accounting world. Retaining your proof of purchase for everything business-related is an absolute must-have for accurate bookkeeping and an enhanced tax return.
Not only is it vital in case of an audit, but it also makes for lighter work as an accountant at the end of each financial year. You should, at the very minimum, be keeping all receipts in a designated folder. A good tip is to have two of these, permanently storing one in your car for expenses incurred while out of the office or on a business trip.
5. Failing to backup records
In conjunction with our abovementioned mistake, physical record keeping just isn’t secure enough, meaning it’s well advised to have a digital copy of everything expense-related in addition to hundreds of tiny dockets.
There are plenty of mobile-friendly resources and apps allowing you to snap and save your receipts on the go. Use cloud software or a hard drive alternative to backup not only financial records but also all confidential information.
This also simplifies things in the event of an audit or request to produce a particular record when required.
6. Lack of frequent and effective communication
You and your bookkeeper need to be on the same page for an effective partnership to prevail. Notification of every payment or expense that may have not correctly hit the books is imperative to a smooth-running ship with reduced errors.
One of the more common conundrums in this space is the spontaneous purchasing of supplies without passing on the details to the bookkeeper or providing any receipts.
Depending on your business, there may be numerous purchases that aren’t exactly ‘on paper’. There are other situations such as paying an employee or a contractor a bonus and failing to communicate the specifics with your accounting team.
7. Attempting it all yourself
Small business owners generally have more to worry about than they’d like to without putting their hands up to do their own books. However, circumstances do exist where some refuse to hand over the reins to an actual professional, poorly attempt their own bookkeeping then quickly realise they’re in deeper than expected waters.
Usually, no matter how much experience you’ve had as a business manager, a bookkeeper will almost always pick up discrepancies and those smaller errors more effortlessly than you ever will, not to mention the magnitude of other financial advice and benefits they can offer.
Trying to oversee every aspect of your business is a disaster in the works and is most definitely an investment worth paying for to keep your books in the green.
While trends change along with our target markets, one common denominator remains the same – Proper financial management.
Modern, competitive environments not only demand trust, value and quality from all businesses striving to deliver what they promise, but also have to be capable of effective resource distribution.
If you find yourself frequently bumping into these issues or making repetitive vital mistakes, then there's no better time than the present to reassess operations and get in touch with a professional bookkeeper to take a fresh look.
Read some of our latest articles including How to Shift to Remote Work for further information and resources regarding managing small business structures and other tips.
Contact Ironbark Industries Bookkeeping for enquiries related to conducting a Profit First instant business assessment or to discuss all our other bookkeeping and accounting services.