Common bookkeeping mistakes made by small businesses

Introduction:

A small business owner has a lot to keep track of. From inventory and expenses to employee hours and revenue, there is a lot of data to manage on a daily basis. As such, it is not surprising that bookkeeping mistakes are common.

Bookkeeping for small business is crucial for growing the empire and yet it is often overlooked or not given the attention it deserves. This can lead to a number of problems down the road, including inaccurate financial reports, errors in tax filings and difficulty making sound decision.

Fortunately, these mistakes are easy to handle with a little planning and attention to detail.

As they say, “Good bookkeeping leads to good business management and growth.”

In this blog, we'll discuss some of the most common mistakes made in bookkeeping and how to avoid them.

Some of the most common bookkeeping mistakes:

1. Mixing personal and business spending:

One of the most common bookkeeping mistakes made by small businesses is mixing business and personal expenses. This can make it difficult to track business expenses and can lead to errors in your tax return and potentially trigger an audit. You may not get an accurate picture of your business's financial health.

To avoid this, it is important to keep personal and business expenses separate. Here are some tips that might help you:

• Keep separate bank accounts for your business and personal finances.
• Use a separate debit and credit card for business expenses and keep all receipts for business-related purchases.
• Don't confuse business and personal cards. Get a new card from a different bank. Put stickers on both types of financial institutions' plastic, so you can tell them apart at first glance!
• To avoid temptation, keep an emergency fund for quick and miscellaneous business expenses in case your business accounts are depleted.

Additionally, mixing business and personal expenses makes it difficult to get an accurate picture of your business's financial health.

Setting up your business banking | Australian Taxation Office

Of course, if you accidentally pay for personal expenses with your business card (or vice versa) it’s not the end of world. You can reimburse yourself or record this purchase as “an Owner's Drawing.’’ But why bother when we have so many other things to do?

2. Putting it off until you can’t stand it anymore:

Bookkeeping is a necessary evil for any business to manage. The sooner you get started, the less work it will be in future years when things are complicated and there's more that needs doing!

The consequences of neglecting bookkeeping until you can’t avoid it, could have serious effects on your business:

• You wouldn't remember what your receipts were for, and it would be a struggle to figure out how you paid. Missing receipts, invoices or emails would only get worse as time goes on.
• Imagine the chaos of trying to reconcile your bank account with internal records for longer periods. It's a nightmare that needs monthly attention, and there are plenty who would rather not deal with it at all!
• If you don't document your tax-deductible expenses, then it's possible that these will be forgotten about and not maximize any potential savings for the year.
• When you fail to catch and fix errors before they turn into major problems, your business will suffer. One mistake can lead to another and before you know it your whole day has been ruined because of a simple accounting error!
• The financials you use to make decisions will be outdated if not kept up to date

The longer someone puts off bookkeeping, it will just mean more work at the end!

3. Hiring an inexperienced bookkeeper:

Engaging an online bookkeeper suitable to your business is an important decision. You get what you pay for when hiring a bookkeeper.

Do not hire someone who does not have experience in your niche or field of business, as they will be unable to provide valuable insights for you and it could lead up costing more time than necessary on their end with trying new things that may work better elsewhere!

When you're starting your business, it can be hard to find time for everything. But adding an experienced bookkeeper who's also certified will help make sure that all of the numbers add up in ways they should!

The right bookkeeper can make your startup work easier. They'll have all of the skills and experience you need, so it won't be hard for them to take on new tasks as needed.

A new business owner might not be aware, but there are many regulations in place for startups like yours (or any company). The lack of experience can create some serious problems down the line if they aren't careful - which means hiring someone who's qualified from day 1 is critical!

The certified bookkeeper will help with your finances and ensure you're complying with all of the rules.

4. Unorganized record-keeping:

The number one tip for startups is to stay organized. It’s understandable that you don't have the time or energy right now, but this will likely come back and bite us in our collective faces when we're trying desperately.

If things are disorganized - lost documents with unpaid bills- then how can they grow?

You may regret not being streamlined sooner than later: an accounts payable process without any sense of how much money has already been collected from customers (and where!) means missed opportunities at making sure all your invoices get paid on time each month.

So find some way to make ends meet!

5. Not fully reading and understanding your financial statements:

Financial statements provide a detailed look into how well your company is doing financially and what challenges it might be facing going forward (or back).

Financial data without analysis can be just numbers on a page, but if you don’t understand how to interpret your financial reports it could mean bad decisions and missing important information for your business's future success!

The worse thing about this situation? You may not even realize that there's a problem until it becomes too late.

If read properly by an experienced eye; these documents will allow for smart decisions about marketing strategy as well as potential investments.

Purpose of financial statements:

• Understand your business' financial standing at a glance.
• Get an accurate, real-time view of how your business is performing.
• Stay in control of your cash flow and make better financial decisions for your business.
• Get a leg up on the competition by being able to spot trends and maximize tax deduction.
• Get a better idea of where to allocate resources to improve profits.
• Avoid costly mistakes by getting an expert's advice before it’s too late.

The bottom line is that you need a good understanding of your company's finances if it hopes for long term success. Financial statements give an accurate representation not only about what happened but also how well or poorly things are going from day-to date as well!

6. Overlooking tax deductions:

Measuring up to your tax obligations isn't something anyone should take lightly. This is why it's important that you claim every possible deduction, including those for expenses incurred while running a business.

By claiming business expenses on your taxes, you may lower the amount of tax due. However, by missing or improperly claiming deductions it is possible to wind up paying more taxes.

There are certain rules to know before you claim an expense as a deduction:

• The expense must have been incurred business use and not for private use.
• If an expense is related to both business and private use, you can only claim the business portion.
• There should be adequate records to evidence the expense incurred.

It's important to know your sales tax obligations because the government doesn't care if you have been collecting them from customers or not.

They just want an accurate account of how much money was owed at any point during last year, and they will take appropriate measures when this isn’t reflected in records available for review. ‘You can read more on why bookkeeping is the first step to tax resolution here’

7. Missing filing deadlines because the books weren’t done on time:

The ATO has a very strict policy when it comes to filing your taxes. If you don't file your tax return by the deadline, they will charge an FTL (Failure to lodge) penalty.

These are fines for missing deadlines or having unorganized books at home with no records of income earned during the year!

This may not happen for a single offense, but the government reserves the right for these fines, and we've seen it happen plenty of times!

The best way to avoid these hefty fees? Make sure everything is in order before submitting so nothing goes a miss when it comes down to paying taxes.

It's important to keep up with annual tax filing. But it's also important that you're also keeping track of your monthly/quarterly taxes and any other reports which are due.

The more organized with monthly bookkeeping will make pulling these files for filing on time much easier than trying do so in one big batch at the end so they can meet deadlines on time.

8. Using accounting software incorrectly:

Make sure you’re using the most up-to date version of your accounting software as it can make or break your small business.

You need to ask yourself these questions to understand how efficient your software is:

• Does this program have all necessary features necessary for your business?
• Can it handle my bookkeeping needs on a larger scale than what I currently do?
• Does something need changing in order to keep track efficiently enough with everything going around nowadays (new tax rules)?
• Is it compatible with changing tax rates
• And most importantly: do I know how to work on the software?

Every year ask yourself these questions again!

Setting up a customized chart of accounts from day one is key to keeping your business organized and efficient. You'll spend way less time doing the books than you should, so make sure that any bookkeeping system you choose has been designed with small businesses in mind!

9. Guessing your way through recording income & expenses:

The worst thing an entrepreneur can do is guess their way through bookkeeping.

It may seem like the right thing to do at first, but if you are not fully aware of all aspects involved in keeping records for tax purposes then your guesses will likely compound over time and leave a year’s worth unopenable with no chance to fix things before it's too late!

Some examples could be:

• Incorrect categorization of expenses
• Recording payments to yourself as an expense
• Reporting transfers as income
• Neglecting tax deductions
• Not classifying employees correctly for payroll

It's not worth taking a "best guess" approach to your books. This will come back to you in unimaginable ways!

10. Tossing your receipts too early:

The consequences of losing your receipts and wasting tax-related documentation can be severe. Not only will it make back up of deductions in tax return difficult, but you may also end up paying a fine!

The Australian government requires you to keep certain financial records for five years after lodging your tax return. This includes written evidence of all reports, statements and ascertainments presented during that time frame or they will be considered unfit and liable towards penalties!

If you find yourself without a pen or paper, just whip out your phone and take advantage of the cloud! Keeping digital records is perfectly fine.

Upload them to the accounting software you use or take pictures and store in Google Drive (or Dropbox). It’s important that every expense is documented so they can find their way back when it comes time for an audit!

Conclusion

Bookkeeping is a complex process, and many people find themselves at the mercy of their own time management skills when it comes to completing this task.

There are many ways to get your books in order, but if you want the best chance of success and a quick turnaround time when it comes tax season then bookkeeping services from an experienced professional is what’s needed.

The adage "an informed decision beats rushed one" rings true with why you need an experienced professional for bookkeeping services because if nothing else, they will be able plan out your books ahead of any deadlines ensuring accuracy while also providing peace in mind knowing everything has been done correctly without rush or worry!

Let Accuratee take care of your bookkeeping needs. We are committed to 100% customer satisfaction and will provide you with tailored services that fit just right!

So, if you need a reliable bookkeeper for your small business or large corporation feel free to book a call today!

Book a call today and take advantage of all our excellent services.

You can call us at 1800 96 50 90 | email at info@accuratee.com.au