Bookkeeping mistakes can cost you lots of money and time. Working with the best accounting bookkeeping service is a great way to streamline your operations and avoid falling into a crisis. It is not uncommon for start-ups and small businesses to deal with bookkeeping mistakes now and then. The fact that an entrepreneur is inexperienced or that he or she lacks adequate procedures means they are susceptible to making errors. However, the only problem is that some of these mistakes can have far-reaching consequences that can cripple or sometimes break the business.
In this article, we will highlight the eight biggest bookkeeping mistakes that you should avoid helping point you in the right direction.
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Do it yourself
As a start-up or small business owner, you likely are operating in a shoestring budget – and are keen on making the most out of every dollar that you earn. That’s a good thing. But some things are better left to the professionals – like accounting and bookkeeping. There is a reason why these people are trained – because the processes need technical knowledge. Trying to muddle on your own can save you’re a coin or two in the beginning. But once a mistake (or many mistakes) is made, you will need an expert to fix it for you. And you think about it, that’s more money out of your pocket – not to mention the time you wasted trying to do it yourself. Hiring the best accounting bookkeeping services right off the bat can save you the trouble.
Postponing the task to a later date
There are a lot of things to attend to that makes it hard for you to accomplish every task on your to-do list – that’s the life of an entrepreneur. But postponing some obligations like book reconciliation can and will harm your business in the long run. Reconciling all transactions that run through your accounts (including loans, credit cards, bank accounts, owner contributions, etc.) regularly allows you to capture and record all transactions. But if you miss this step, you can only expect to face significant mistakes as well as a loss of tax-deductible expenses.
Mixing personal and business expenses
1 in 5 entrepreneurs makes the mistake of mixing business and personal accounts. Although this might not seem like a problem, blurring the line between your expenses only makes bookkeeping even more difficult. Combining accounts can result in costs missed, difficulties when filling, vulnerability if the business is sued or audited, missed write-offs and expenses, and more time spent on bookkeeping.
Organization is critical, and for your finances, a significant part of being organized is by correctly categorizing your expenses. Proper classification keeps your records accurate and gives you a clear picture of your financial state.
Wrongly accounting for sales tax
If your solutions are subject to tax, then you have to document the sales tax part of the sale in a different place – and not mix it with other sales. Failing to do this, or not correctly accounting for sales tax can lead to inaccurate sales tax return filings, inflated sales numbers, and possible underpayment penalties – all which have serious consequences. Knowing how to use your accounting software properly will help you file returns the right way, have accurate sales numbers for your reports, and pay the correct sales tax amount.
Not monitoring receipts for minor purchases
Even the most organized entrepreneur will, at some point, forget to keep a business-related receipt following a purchase. But although the small costs – like transport to town or paying for a delivery – may seem negligent, they can quickly add up. Besides, you do not want to answer the authorities if you have claimed expenses but without proof to confirm your transactions.
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Writing off donations for the business
You can write off donations issued to charitable courses from your personal tax returns, but you cannot do so for your business. Since businesses are usually provided with advertising space, recognition, or any other form of concession as a payback for their contribution, they aren’t truly seen as “charity”. So, if your business donates for charity, you shouldn’t take charitable tax deductions, and if you do, then you’ll be dealing with the authorities sooner than you imagined.
Not updating your books
The first few years of starting a business can be overwhelming for entrepreneurs, but not keeping things current will only make matters worse. It is in your best interest to ensure that all books are present as they should be. If you are lagging on this, then you may want to bring in an expert to help out.
Mistakes and errors in your books can result in a lot of problems. But the good news is that this is something you can avoid by practicing the points mentioned above.