Before I even start, let me say that I understand everything that is running through your mind. It is a scary place in there! So, it only makes sense that tracking your expenses is on the back burner. Heck, you can’t even remember to throw that receipt into the shoe box of taxes. What receipt? Oh boy, we have bigger issues.
If that sounds like you, don’t worry, you’re not alone. However, that doesn’t mean it’s okay. Bookkeeping is a very important part of your business, more important than you may give it credit for (no pun intended). This one task could literally make or break your business, allow you to gain investors, and even make day to day business decisions. So, what bookkeeping mistakes are you making that we need to fix right now?
1. Lack of or improper record keeping. Yes, you MUST keep your receipts! They say that anything $25 and over should be kept, but you really should keep them ALL! That is the best practice and if you are audited, the IRS will not hesitate to penalize you for lack of evidence.
2. Incorrectly categorizing expenses. Correctly categorizing expenses and income can help you keep more of your money or lose more money. You or the person you hire should have bookkeeping knowledge, because it can cause big issues if you do not.
3. Mixing your personal and business accounts. Here comes the ugly word again, but it happens more than you think. Audit. The IRS does not like when your personal finances mix with your business expenses. Keeping separate accounts will help you see where you stand, especially when you reconcile them monthly – which you should do! Reconciling your bank account helps you to catch any errors that may occur.
4. Neglecting sales and/or payroll tax. This can be very costly! Did you know that there is a fee + interest added for every day that your payment is late? This can become very costly and lead you to wasting money that could have been happily sitting in your bank account.
5. Using cash instead of accrual based accounting. Expenses should be accounted for in the month that they happen, not when they are paid. The same thing goes for income – you should account for the income when the service is rendered or product is sold. This gives you a valid picture of your finances from month to month. Think about forecasting for next year. If your numbers were wrong for each month this year, you won’t have a correct forecast.
6. Poor communication. You must keep your bookkeeper in the loop with your business. Share with them what you’re doing in your business, what your goals are, where you’re headed, and what your daily financial activities are. Your bookkeeper can only be proactive and help your business succeed with what you give them.
7. Wasting precious time. If I asked you what you love about your business you would not say bookkeeping. You would say something that you’re good at and what you’re passionate about. Well, those are the things you should be doing more of! Your business cannot grow if you’re spending time on your books, doing it incorrectly, when you should be networking and improving your business. Having a bookkeeper will allow you to spend your time on what you love and what will bring you more income. A good bookkeeper will simplify the numbers, making it easier for you to make decisions that grow your business even more.
This doesn’t have to be overwhelming, there are just a few tasks you need to do each day and I have the list here. If you still dread it and just can’t find the time, contact me to see if working together would allow your business to become more profitable.