Almost every small business owner has plans to grow their venture and reach unattainable heights. However, not everyone manages to do so, and there’s a common obstacle behind it – Bookkeeping.
Bookkeeping is vital to every businesses’ success, whether it’s a start-up or a leading corporation. However, small companies usually don’t get bookkeeping right, despite knowing all the tips for successful bookkeeping.
It turns out that 6 out of every ten owners believe they don’t have a firm grasp on accounting concepts. And this causes them to make inexcusable bookkeeping mistakes that harm their business during its early years.
Shedding light on such mistakes is what this article is all about. So, without any further ado, let’s jump right into it.
Why is Bookkeeping Integral to your Small Business’s Success?
Before going through the common bookkeeping mistakes small businesses make, you must learn what bookkeeping means and why it’s essential.
For those of you unaware, bookkeeping refers to organizing and preserving your financial and accounting details. These details include journals, tax records, ledgers, etc.
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As far as a small business is concerned, bookkeeping is a vital ingredient of success. The following reasons are proof of the same:
- Effective financial assessment & management
- Minimum risk of obtaining an audit from the CRA
- Allows owners to keep track of growth & profit.
That being said, it’s now time to look at the significant bookkeeping mistakes made by small business owners.
7 Prominent Bookkeeping Mistakes Made by Small Businesses
#1 Attempting to Do Everything by Yourself
You must be familiar with the saying, “Jack of all trades, master of none.” Well, it’s interesting to note that this saying is applicable in your professional life as well.
As a business owner, it’s your key responsibility to ensure proper financial resource management. However, that doesn’t mean you must assume all the accounting tasks in your company. And if, by any chance, you don’t boast decent accounting skills, that could make things worse.
Therefore, it’s recommended that you don’t make the mistake of doing the bookkeeping yourself. Leave this task to a dedicated professional who can leverage accounting trends of 2021 and offer you quality services where they are needed.
#2 Failing to Maintain a Backup of Records
The advancements in cloud technology over the years have made the bookkeepers’ jobs relatively easy. Gone are the days when retaining hard copies of essential records was the norm. These days, a more secure and feasible option is available – Cloud hosting.
But even though cloud hosting does an excellent job of making sure that your data is accessible 24/7, there could be a few problems you can run into. For starters, technical glitches can prevent you from fetching business reports, statements, and other integral documents stored in the cloud. Additionally, you should never overlook cybersecurity risks.
This is why you should create and maintain a hard or digital backup of every record.
#3 Disregarding a Big Purchase as a One-Time Expense
Suppose you end up getting an expensive fountain pen, hundreds of dollars worth of printer paper, or any other item that would need to be reloaded within weeks or a few months. In that case, it’s better to document such a purchase under “office supplies” and disregard it.
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However, if you are buying a high-end computer, that would be another story. Since a computer would help you for quite some time, you must document it as such. So, make it a practice to record any big and useful purchases that would depreciate steadily as assets.
#4 Getting Rid of Receipts for Small Purchases
Buying a couple of stationery items, spending a few dollars on a new water dispenser, and many other small purchases often do not make it to the record books. Many small business owners disregard such receipts without giving them a second thought.
However, you should know that these small expenditures might amount to a hefty sum. And not having a record to justify this sum could create difficulties in budgeting and assessing cash flow.
Thus, always maintain receipts for business expenses amounting to less than $75.
#5 Always Opting for the Cheapest Possible Resource/Product/Service
As a small business owner, it’s your responsibility to save money where possible. However, this doesn’t mean you should compromise on quality. For example, don’t just hire Accountant A because they are charging you less than Accountant B is. Do your research, look for the required qualities and skillset, and then go with the most cost-effective option.
Similarly, you should be careful while spending money on services or supplies/materials. While you don’t want to waste any money, quality should always be the top factor in your decision-making process.
#6 Misclassifying Human Resources
Misclassifying the people working for you can put you in serious legal trouble. Whether you are availing of employees’ services, independent contractors, or freelancers, make sure to classify them correctly. For this task, you will have to take help of bookkeeper for small businesses.
A bookkeeper, in this case, will walk you through the differences between a 1099 and a W-2 employee.
#7 Not Having the Owner Review the Books
Yes, a small business owner should have a professional accountant to keep books. However, it’s not advisable to give unrestricted access to confidential data to a resource without imposing any checks on them.
There have been countless instances of owners getting scammed by their accountants/bookkeepers.
Therefore, for the sake of your venture’s growth, always take time to review your books.
Yes, bookkeeping indeed is one of, if not the, most crucial factors linked to a venture’s success. However, many small business owners often face financial challenges due to making avoidable bookkeeping mistakes.
Here’s hoping that this article will help in preventing you from making such blunders. After all, what good is a business that doesn’t grow, right?