Bookkeeping and Your Business
Running a business can be both fulfilling and stressful.
There is an undeniable satisfaction that comes from watching your idea become reality. However, there is more to running a successful business than product creation and marketing. While these are very important, keeping track of your expenses and making sure your finances are in order are just as essential.
This is why bookkeeping should be a top priority for every business owner. Although it seems mundane and can be tedious, it is a key factor in determining whether you make a profit or lose your investment.
Below we detail some of the most common bookkeeping mistakes that you should be aware of.
Not Having a Business Plan
Planning is an important part of starting a business. Having a solid business plan before you launch will help ensure that your company is prepared and ready to operate. This may seem obvious, but many small business owners are so eager to get started that they forget to lay down a thorough business plan as a foundation.
Your financial goals and bookkeeping processes should be part of your business plan. It should clearly outline the schedules and the people responsible for each task. This way, it is clear when certain financial deliverables are due, and who is responsible for creating them.
Even if it is just a one-person business, an organized bookkeeping schedule can help keep your business from going under.
Lack of Organization
Bookkeeping problems are common for small businesses. If you have limited team members, tracking all receipts and expenses will fall on the business owner. It is difficult for business owners to track finances, keep inventory stocked, and boost employee morale all at once.
Being organized will help you save a lot of time and reduce stress when it comes to bookkeeping. Before you launch, you should figure out where you will file receipts and when you will keep tabs on them. We highly recommend utilizing the advantages of technology when organizing your receipts. Lloyd & Hodge’s digital cloud bookkeeping services offer on-demand document storage and management, as well as vastly increased searchability for reporting and recall.
Not Having a Budget
It is common for small businesses to operate with limited cash flow. For businesses that have just started their operations, it can take a while to actually turn a profit. This is why it is essential to make sure that your business cash flow is transparent, organized, and within budget.
It is best to audit all your expenses before you start trimming the fat and create a defined budget. This will give you a clear picture of how money moves within your business.
Having a proper budget will help make keeping track of all transactions much less of a hassle.
Not Reconciling Bank Accounts
Some small business owners assume that operating your business with your personal bank account is sufficient. However, come audit time, not having separate bank accounts for your business and personal activities can lead to significant issues.
Should you be audited, you will have to provide complete records of your business activities that are separated from your personal expenses. To minimize errors and identify potential issues, make sure that your bank accounts are properly reconciled each month.
Not Classifying Employees
There is more to bookkeeping than just inventory and raw materials. Businesses must also consider the kind of employees they have on payroll. For most businesses, there are two types of employees, full-time workers, and independent contractors. Make sure to keep track of everybody’s employment status so that when it is time to file, there won’t be any concerns about misfiling.
Poor Petty Cash Management
Some business owners view petty cash as free money. They see it as funds that can be used for anything that can be attributed to the business. While that is true to some degree, petty cash should not be used as a business owner’s personal wallet. Any transaction made using petty cash still needs to be tracked.
Thankfully, keeping track of petty cash is pretty straightforward. It doesn’t require any confusing technology, just proper documentation and timely auditing.
Neglecting Sales Tax
A common error for many small businesses is not properly reporting and accounting for sales tax. This simple mistake could end up costing your business a considerable amount of money. Oversight in collecting and reporting sales tax can result in heavy fines and penalties that a business might not be able to handle.
Before launching your business, familiarize yourself with how sales tax and other state and federal taxes apply to your business and its operations. This will help ensure that you don’t neglect or forget to file the appropriate taxes.
Not Having Backups
Bookkeeping technology can be a challenge for many small business owners, even those who have been running their business for a few years. If you don’t completely understand a program, there is always a chance that you miss or delete essential data.
This is why you should always have a backup of your files. It helps to have a physical copy of your books. If something happens to your computer, you will be able to update your finances without any hassles.
Incorrectly Categorizing Expenses
Correctly tracking your income and expenses in the right categories provides a proper measurement of profitability. If you do not have knowledge of formal bookkeeping practices, then this can become a problem. Knowing the different tax treatments of each income and expense category can also yield significant tax savings.
Not Outsourcing Bookkeeping
Nothing is stopping you from keeping your own books, but there is a reason why bookkeeping is so sought after as a professional service. There are many aspects of the process that take years to master. Opting to outsource your bookkeeping will help you keep track of your business’ finances in an efficient and stress-free manner without having to make it your full-time job. Outsourcing your bookkeeping services can help you save time and allow you and your staff to focus on what you do best.
Leave the bookkeeping to the professionals.
Published by Lloyd & Hodge | Written by Whitney Hodge | October 2020