As a small business owner, keeping financial records that are 100% up-to-date and compliant is absolutely essential. If you fail to properly report income and expenses, the costs could be dire.
The IRS could decide to impose costly penalties on your company for noncompliance, or you could end up in serious legal action. That’s why it is important to recognize the most common bookkeeping mistakes and learn how to avoid them.
Although it might seem daunting at first, good bookkeeping is not rocket science. With the right know-how to hand, you can ensure flawless and 100% compliant bookkeeping at all times. Read on find out the six crucial mistakes to avoid when bookkeeping for small businesses.
1. Not Learning How to Avoid Common Bookkeeping Mistakes
The most effective thing you can do to ensure perfect accounting and bookkeeping is to at least learn the basics yourself. Mastering personal and small business accounting basics will help you stay on top of your business finances and make you a better entrepreneur for life. Fortunately, you do not need to go to accounting school for this. Simply head to this page to find out how you can study the bookkeeping essentials from home.
2. Refusing to Hire Professional Help
We understand that hiring bookkeeping services might seem like an unjustifiable expense to some cash-strapped business owners. However, the benefits will always greatly outweight the costs. You do not need to splash out for an in-house accountant. Simply hire a business accountant as needed to ensure total compliance and to keep your books in order.
3. Improper Record-Keeping of Your Financial Transactions
We cannot stress this one enough. Backing up data and keeping a proper record of every single transaction is essential that’s why it’s important that every business is equipped with an expense tracking software to track and control their business expenses. Keep your receipts and invoices. Make sure every penny from every single sale is backed up somewhere. If you get audited, you will need to provide this documentation or face legal action.
4. Not Classifying Your Employees the Right Way
Always make sure that you have classed your workers correctly on all of your tax forms and financial records. Are they contractors, employees, or casual workers? If you fail to classify your workers correctly, you will risk underpaying or overpaying on your tax.
5. Forgetting About the Sales Tax
Everyone forgets to add sales tax at some point. However, the IRS will not be forgiving if you forget to add it to your statements. Failure to account for sales tax is a federal offence and will result in substantial fines. Do not forget to add your sales tax.
6. Neglecting to Reconcile Your Statements with Your Accounts
No matter the size of your business, you must keep your personal accounts separate from your business accounts. Although failing to do so is not a crime, it will make it much more difficult to reconcile your accounts come tax season. You must reconcile your statements with your accounts to ensure that every penny is accounted for. This is the only way to ensure good accounting.
Simple Tips for Better Business Practice
Now that you know how to avoid the most common bookkeeping mistakes, it’s time to learn more. In our dedicated Business section, you will find practical everyday tips on everything you need to know about running a business. Get started today.