1. Mixing Business And Personal Funds
Co-mingling your funds with your personal and business expenses could land you in trouble with the IRS if you aren’t tracking and accounting for those expenses in the proper way. If you keep poor records and claim your personal expenses to be business expenses then you are not accurately reporting your tax liability. Most small businesses who mix their funds don’t keep proper documentation so when the IRS comes knocking on their door, the documentation showing what is business and what is personal can be hard, if not impossible, to prove resulting in possible severe consequences.
2. Not Properly Setting Up Your Chart Of Accounts
The chart of accounts (COA) is the main hub of where your bookkeeping is organized. It is important to have the COA set up properly so that all the various different types of transactions that your business makes on a daily basis are properly sorted, organized, and consolidated. Whether you process less than or more than 100 transactions a month, the COA will give you an overview of where your money is and how it’s being used.
3. Inaccurate Categorization
Inaccurately categorizing your business expenses, income, and assets could cost you A LOT of $$$ in lost tax deductions. One of the main things that busy small business owners do incorrectly is categorizing the flow of money coming in and going out of the business. This mistake could cost you big time and instead of the money being kept in your business, you’ll be giving it away to the IRS. A professional bookkeeper will accurately record your expenses, income, and assets allowing you to keep more of your money in your pocket.
4. Falling Behind On Bookkeeping
Busy small business owners often don’t know how much money they are making and how much they are spending and one of those reasons is because they don’t have the time it takes to learn the bookkeeping software and/or how to accurately input the business transactions into the accounting software. When you fall behind on your books you are making business decisions based on inaccurate numbers ultimately hurting your business. Staying on top of the books will give you a clear insight into the financial health of your business and will help you make better decisions.
5. Not Reconciling Your Bank Accounts
During the bookkeeping process a lot of the business transactions can be downloaded into the software eliminating the need to manually key in every single transaction. At other times, it is necessary to key in some transactions such as bills, invoices, and cash payments. Reconciling your bank accounts is a necessary process in bookkeeping to ensure that none of the transactions were duplicated or omitted. Duplicating or omitting transactions will display incorrect profit and loss information for your business resulting in inaccurate reporting..
6. Not Knowing What The Financial Statements Are Telling You
Many small business owners may not have seen or even heard of financial statements. You should review your financial statements on a monthly basis to know your financial health. It is important to know what the Profit and Loss, Balance Summary, and Statement of Cash Flow reports are telling you about your business. Many important business decisions need to be made on a regular basis and you should base those decisions on proper reporting shown in your financial statements.
7. Trying To Do It Yourself
In today’s economy many small businesses are trying to save time and money by cutting back, one of the areas that they should not be cutting back on is bookkeeping. It takes time and effort to properly record business transactions and produce financial reports. Hiring a bookkeeping professional provides proper reporting for your business and a second set of eyes. A skilled bookkeeper will help you make more informed financial decisions for your business and may help to reduce your tax obligation resulting in bigger profits.
Contact Us today so we can discuss further all the ways we can help you and your business.
