Running a business is as fulfilling as it is stressful. There is joy that comes from seeing your idea become reality. It doesn’t hurt that as a business owner, you get to be your own boss, schedule your work hours, and have the opportunity to help your community.
Nevertheless, there is more to owning a company that product creation and marketing. While it is important to improve your products and get your brand message across audiences, keeping tabs of your expenditures and making sure your business finances are in order is just as essential in running a successful enterprise.
Needless to say, bookkeeping should be a priority for every business owner. As mundane and tedious as it is, ensuring that your books are in order can be the difference between making a profit and losing your investment.
New to entrepreneurship? Below are a few bookkeeping mistakes that you should be aware of:
Common Mistakes That Can Be The Downfall to Your Business
- Lack of Business Plan
- Poor Organization Skills
- Not Separating Business and Personal Accounts
- Not Having a Budget
- Failing to Classify Employees
- Forgetting Sales Tax
- Misusing Petty Cash
- Not Having a Back-Up
- Taking On a Project Without Ample Knowledge
Lack of Business Plan
As with any endeavor, planning is an essential part of starting a business. Building a strong business plan before your launch can ensure that your company is prepared and ready to be in operation. While this should go without saying, many entrepreneurs are all too eager to increase inventory without so much as laying a good business plan as a foundation.
Your business plan should include your financial goals and bookkeeping process. It should layout the schedules and people who are in charge of each task. This way, there is a check and balanced as to when certain financial deliverables should be ready, and who should be in charge of creating them.
Even if it is just a one-person operation, having a clear-cut bookkeeping schedule as part of your business plan can keep your business from going under. It is always better to be prepared.
Poor Organization Skills
Record-keeping problems aren’t uncommon for most small businesses. Especially if you have limited team members, keeping track of all receipts and expenses falls on the business owner. It is very challenging to track finances, keep inventory stocked, and boost employee morale all at the same time.
With that said, being organized can save you a lot of time and stress when it comes to bookkeeping. Even before your launch, it is best to figure out where you would file your receipts and when you would be keeping tabs on them. There is no reason for you to not tap into technology when organizing your receipts. In fact, taking a picture and keeping a soft copy can ensure that you don’t lose an important document.
Not Separating Business and Personal Accounts
For small operations, it is easy to assume that operating your business with your personal bank account is ideal. However, come audit time, not having that separation can cause issues and delayed. And if there is an entity that you should avoid having problems with, it is the IRS.
Not Having a Budget
Running a small business most often involves limited cashflow. For those who have only started their operations, it might take a while to actually turn a profit. With that said, making sure that your small business cash flow is transparent, organized, and within the budget is essential.
It is best to make an audit of all your expenses before you start cutting the fat and creating a defined budget. Doing so would give you a clear picture of how money moves within your business.
Having a budget is important in bookkeeping because knowing your expenditures like the back of your hand makes keeping track of all transactions less of a hassle.
Failing to Classify Employees
Bookkeeping doesn’t just involve inventory and raw materials. Businesses also have to take the kind of employees they have on payroll. For the most part, most operations have two types of employees – full-time workers and independent contractors. It is best to keep track of everyone’s employment status so that come filing time, there wouldn’t be any concerns in misfiling.
Forgetting Sales Tax
Another common mistake in bookkeeping is neglecting filing petty cash. While it is common, this mistake can cause your business a considerable amount of money. This oversight can result in fines and penalties that a small business might not be able to accommodate for.
Before opening up a business, familiarize yourself with how sales tax, or any other type of tax, works. This way you don’t neglect or forget to file aspects of your business that are non-negotiables.
Misusing Petty Cash
There are business operators that think of petty cash as free money – funds that can be used for everything and anything that can be attributed to the business. While that isn’t necessarily untrue, petty cash isn’t a business owner’s personal wallet. Transactions made using petty cash also need to be tracked.
Thankfully, keeping tabs of petty cash doesn’t involve a whole lot of confusing technology. A simple cash box next to the register is often enough to keep it in check.
Not Having a Back-Up
As discussed earlier, bookkeeping technology can be challenging for a lot of people – even for those who have been operating businesses for a few years. If you don’t understand a program there is a big chance that you would miss or delete data that is essential.
Having said that, having a back-up for your files should be a must. If you can, try to have a physical copy of your books. In case something happens with your computer, you would be able to update your finances without having to miss too much.
Taking On a Project Without Ample Knowledge
There is no stopping you from keeping your own books. However, there is a reason why bookkeeping is a legitimate professional career. There are simple aspects of the process that takes years to master.
If you are not confident with your bookkeeping skills, opting for outsourced bookkeeping services can help you keep track of your business’ finances in an efficient and stress-free way.