Common Bookkeeping Mistakes
Bookkeeping, as mundane as it may first appear, is actually the biggest secret weapon when it comes to business management and success. “It is only with accurate and consistent measurement of a company’s financials and other key indicators that we as business owners can effectively manage and expand our businesses, (source).” Mistakes can easily happen in this field and attention to detail is crucial. “Statistics reveal that about half of all new small businesses fail within the first five years. What is the main cause of small business failure? Poor financial management, (source).” Here are 6 of the most common bookkeeping mistakes and how having an external bookkeeper (like eMerge) can save you a lot of heachaches.
1. Neglecting Sales Tax: “With many businesses, not reporting sales tax and not accounting for it is a common error in bookkeeping, (source).” Not tracking and reporting sales tax can lead to penalties and also higher sales and overstated sales taxes due.
2. Wasting Time: This is a big tip when it comes to eliminating mistakes. So much time is wasted when small business owners take bookkeeping matters into their own hands without the knowledge or training that it takes to properly manage the books. Time has value attached to it and having a bookkeeper frees up essential time that could be used to grow your business.
3. Sales Tax Returns: “Sales tax returns are often filed based on the sales tax reports within your bookkeeping software. However, sometimes transactions get posted through the general ledger to these sales tax accounts without being linked to the sales tax reports, (source).” By cross checking these sales tax reports each month to ensure they tie to the balances in the ledger you can reduce error.
4. Poor Communication: It is important to have strong communication between your bookkeeper and employees to ensure correct information. “Keep your bookkeeper involved and integrated with what’s going on inside the business, (source).” This will allow the true operational needs of the business to be met and accurate financial statements to be made.
5. Separate Bank Accounts: It's crucial that personal and business finances be kept separate at all times, regardless of the size. “If you are audited, you will need to provide complete records of business-related activities, separate from your personal expenses, (source).”
6. Owners Drawings: Many business owners draw money out of their companies in addition to their regular pay as expenses come up. Owners also regularly pay for personal items with their business accounts. “These transactions are sometimes recorded as expenses, which again produce inaccurate financial statements, (source).” By setting up an equity account called Owners Drawings you can record all owner transactions into this account, which can incorporate owner contributions, owner drawings, and personal transactions.
Overall these are just some of the most common mistakes and all have easy solutions that can be implemented. By having a bookkeeper, most of these errors are avoided or greatly lessened. Contact me for more information on my bookkeeping services and how I can save you time and money.