- 1880 Braselton Hwy, Suite 118 #5091 Lawrenceville Georgia 30043
March 25, 2024
Starting a new business can be both exciting and challenging. As a new business owner, you have to manage a myriad of responsibilities, from managing employees to keeping track of finances.
Maintaining accurate bookkeeping records is one of the most critical aspects of running a successful business. However, even the most organized entrepreneurs can make mistakes when it comes to bookkeeping.
In this article, we’ll discuss eight common bookkeeping mistakes made by new businesses. By identifying these mistakes, you can avoid them and keep your finances in order to help your business thrive.
Proper bookkeeping is essential for the success of your business, yet it’s one of the most commonly overlooked aspects of running a business. Here are the eight common bookkeeping mistakes made by new businesses:
We often only record a fraction of our transactions, relying too much on our memory. Unfortunately, it’s easy to forget small expenses that accumulate and disrupt your financial records, especially when you’re busy with your business.
It’s crucial to establish a proper filing system to maintain accurate records. This ensures accuracy and prepares you for potential audits, saving you time and reducing your tax liabilities.
Thanks to technology, most of our documents and data are stored securely. You can access a wealth of information vital to your business with a single click.
However, errors or issues can occur, so being prepared is important. We recommend regularly updating and backing up your data every two weeks to prevent any potential losses.
Keeping your business expense receipts is essential. Losing them could prevent you from recovering costs or cause problems when filing your taxes.
Keeping all your receipts for small purchases like stationery might seem unnecessary, but if HMRC queries your business expense deductions, you’ll be prepared with all the necessary paperwork.
Tracking your accounts receivable isn’t fun. It can be stressful when you’re expecting money that isn’t appearing in your account. After all, you’re a business and expect payment for your goods or services.
Setting payment terms can help your clients understand when payments are due, ensuring your invoice doesn’t come as a surprise. Keeping up with your accounting allows you to streamline your billing process, ensuring timely payments and settling your debts efficiently.
Suppose you forget your company credit card and need to take a client to lunch. Using personal money to cover a business expense might seem easy when funds are tight. However, mixing your finances can create a maze of accounting and tax complications over time.
It could even jeopardize some legal protections if your business is audited or sued. To avoid this pitfall, make it a habit never to use personal funds for business expenses.
In the age of digital wallets, cash payments can be easily forgotten. It’s important to track all cash transactions, even small ones.
You can do this by promptly recording all cash transactions in your accounting software or keeping a “Cash on Hand” journal.
One common mistake among creative professionals is not setting aside money for taxes. As a business owner, you need to understand the importance of reserving a portion of your income for taxes.
This ensures you’re not caught off guard during tax season and protects your business from potential financial harm if you cannot pay a large tax bill.
When hiring a bookkeeper, remember that you get what you pay for. A bookkeeper charging $8 per hour will likely deliver $8 per hour worth of work.
Hire a professional bookkeeper with experience in your industry. They’ll have industry-specific accounting tips and tricks and should be able to complete your books more efficiently.
Bookkeeping mistakes can happen, and they can have serious consequences. They can lead to lost revenue, tax penalties, and even legal issues. The following are some tips to prevent bookkeeping mistakes:
Don’t underestimate small purchases. Keeping track of them, even if not legally required, can prevent repeated refund requests.
Organizing these receipts or using mobile apps with advanced accounting software to scan and photograph them can provide valuable insights into your spending habits and reveal your financial health.
Many successful businesses start from kitchen tables and garages, but it’s vital to separate personal and business finances.
Deducting all legitimate business expenses can reduce tax liabilities. Mixing the two accounts can create confusion. Therefore, keeping personal and business funds separate is crucial.
Manually entering accounting data into an Excel spreadsheet is no longer practical. Spreadsheets don’t protect against inaccurate data input or other accounting errors.
Businesses and independent contractors should switch to an accounting system that can identify minor errors that could later become significant issues. Analyzing data without sitting in front of a spreadsheet is much easier.
Small and medium enterprises (SMEs) need to be extremely careful with their bookkeeping to ensure tax deductibility. Failing to pay taxes on time can result in penalties.
Ensure every business transaction is accurately documented and reported per the latest tax regulations. Consider consulting a tax expert to optimize your tax strategy and reduce your tax obligations.
Both beginners and experienced bookkeepers often make errors in their records. By listing common errors and using it as a quick exercise to hone your skills, you can easily avoid them. Work through each error one by one until you can confidently call yourself an accounting pro.
Planning ahead is usually beneficial in the long run. Reviewing past financial records can often reveal instances where a little more foresight and preparation could have saved money and stress.
Identify and estimate the year’s major expenses and expected business costs, then incorporate them into your business plan.
Bookkeeping is an essential aspect of any business, and new businesses should pay close attention to avoiding the common mistakes discussed in this article. By following the tips mentioned above, new businesses can avoid costly errors and maintain financial stability.
At SOLVBOOKS, we are committed to helping small businesses by providing specialized accounting, payroll, reporting, and financial services. If you want to learn more about the benefits of these services for your business, schedule your free 15-minute consultation with us today. We look forward to helping you achieve financial success.
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