Accounting and bookkeeping are vital functions in any business, no matter how small it is. Proper bookkeeping helps you make better business decisions, plan for the future, and provides valuable information to investors and other interested parties. It is, in essence, a way to evaluate the financial health of the company. Many small business owners are their own bookkeepers, especially in the very beginning when money is tight and they want to maintain a high level of control. While that's perfectly acceptable, there are some serious mistakes that small business owners commonly make that could derail the business. Here are some of the most common bookkeeping issues, and what you can do to avoid making them in your own business.
Tossing Out Receipts
Every time you buy anything, the clerk hands you that little piece of paper that details how much you've spent. In your personal life, you undoubtedly toss out those receipts immediately after you've made a purchase. Most times, they're unnecessary, and just take up space anyway. That kind of thinking doesn't work well for businesses, in fact, it is a major problem. Every purchase that you make for your business, from ink pens to office furniture must be documented and those receipts make that possible. Make a habit of collecting every receipt for the day, week, and month in a convenient location. Be sure to document what the purchase was for and how you paid. Not only will this give you an accurate view of your expenses, it will also help to justify expenses on your taxes.
Many small business owners, especially when they're first starting out, find themselves using personal finances for business purchases, just to get things moving along. Sometimes, they may also use their business's funds to pay for personal items. Even though you're the owner of the business, and the money is technically yours to use, combining personal and business funds is not advisable. First of all, it makes your bookkeeping extra difficult as every transaction has to be sorted out and verified before it can be entered. Secondly, it's far easier to lose track of your actual business expenses, meaning you can miss out on valuable tax advantages. To avoid these issues, use a dedicated business bank account and credit cards. If you need personal funds, pay yourself from the business and deposit into your own personal account.
Failing To Reconcile
When is the last time you reconciled your bank statement and company books? If you aren't reconciling on a monthly basis, you're simply not keeping up. While it sounds like a time-consuming and tedious task that you'd rather not do, it is vitally important and actually quite simple. All it entails is matching the transactions to ensure everything has been input properly and that the balances are the same. Not only will this give you a clear picture of your current financial situation, it will also help you avoid costly overdrafts, bounced checks and other unpleasant surprises. Remember that the longer you wait to reconcile, the longer it will take, and it will also be more complicated. The best approach is to immediately work on the reconciliation when your bank statement arrives, so that you can catch any discrepancies before they become bigger problems.
Going It Alone Too Long
Ultimately, your goal is to grow your business and that means spending a great deal of time and energy on it. You put in long hours, rarely take any time off, and generally obsess over every small detail. While there's nothing inherently bad about that, if you're not focusing on the right things, you will actually stall your business's growth. If you're focused on bookkeeping, for example, you're likely not spending time working on ways to expand. If your business is growing, the bookkeeping tasks become more complex, taking up even more of your precious time. Rather than spending your time in the back office pouring over receipts, doing data entry, trying to keep everything straight, consider hiring a bookkeeper sooner rather than later.
At Eye on Books, we understand that bookkeeping is one of the least appealing tasks that business owners undertake. It can take a great deal of time, patience and energy, all of which are in short supply for a business owner. That said, it's not something that you can put on the back burner either. Rather than muddling through on your own, hoping and praying you've gotten it right, contact us and we'll be happy to lend a hand. No matter what industry your business operates in, or how long you've been in operation, we will tailor a solution to meet your specific needs. Our cloud-based bookkeeping and accounting services and our expert staff on your side, you can spend more time doing the things that grow your business, rather than pulling your hair out trying to keep the books straight.