It does not matter how big or small your business is, bookkeeping errors are bound to crop up every once and a while. More than a quarter of all accounting mistakes happen because of human error or incorrect data entry. Someone in your back office was tired, distracted, or needed a new pair of glasses and turned a 3 into an 8, suddenly causing you to owe taxes, overpay employees, or operate under the impression you have more capital to invest.
While there is no way to completely eliminate common errors when recording your expenses and income points, you can certainly do everything possible to reduce their occurrence. The good news is most of the common errors listed below can be managed with only a few fixes. Here is a list of bookkeeping mistakes to watch out for this year.
1 – Throwing Away Your Receipts
Many businesses avoid keeping receipts under a certain amount. The IRS may not wish to have anything $75 or less, but to throw these documents away means you cannot prove everything on your taxes with 100% accuracy. It may seem redundant or annoying, but keeping your receipts in a safe space around your office or home is a good idea. At the very least, try to snap a picture of the receipt and hang onto that for your bookkeeping needs.
2 – Dismissing Reimbursable Expenses
At the end of every fiscal year, you are faced with a plethora of business expenses you could be taking. Even individual tax filers try to use software to uncover every penny possible to lower their tax obligation. Dismissing these more minor tax deductions hurts your bottom line. They may seem small at first, but they add up to significant savings in the long run when compounded over a year.
3 – Forgetting to Reconcile Accounts
Always, always, always reconcile your accounts. This is especially critical for LLCs or sole proprietorships, where having a separate business account and personal account are necessary to avoid legal or audit issues. Reconciling each account ensures that any mistakes that could pop up are acknowledged and dealt with before being passed off to your tax preparer.
4 – Avoiding Employee Designations
You either employ workers or have deals with independent contractors. There is nothing else when it comes to labor for your business. You need to take the time to properly categorize these workers so you can avoid human resource nightmares or government fees. It is also important that you issue the correct paperwork at the end of the year (1099s, W2s, etc.) so your team and partners understand how much they made and their role in the company and can file their taxes on time.
5 – Forgetting to Make a Backup
There is no way to successfully predict what will happen to your company tomorrow or the next day. You could have the best sales day of the year and when the sun comes up the following day be facing a building completely destroyed by fire. The best way to ensure you will be able to maintain records and rebuild in case of disaster is to have multiple backups. You should have one on-site, one off-site, and one in the cloud. Do yourself a favor and give your most trusted partner/employee access as well in case something were to happen to you. Better yet, hire a professional bookkeeper and provide them with access, so they are legally obliged to operate in specific ways.
6 – Mismanaging Petty Cash
Generations of small business owners have been raised on movies and TV shows where high-powered lawyers and business moguls comp expenses to petty cash. Not realizing that this account requires just as much management as the rest of your business is a critical error. Even though it operates as cash, you can still have deductions, audit issues, and more without keeping careful track.
7 – Forgetting to Deduct Sales Tax
E-commerce has completely changed sales tax laws in both the state and federal governments. Using automated systems like PayPal, Stripe, or Squarespace helps you manage how every state operates but does not excuse your obligations at the end of the year. Failing to deduct sales tax from total sales could easily translate into significant payments or missed expenses deductions when filing your taxes.
8 – Not Having a Chart of Accounts
Even individuals could benefit from a simple chart of accounts that shows cash flow, billing flow, and customer touchpoints. This will help you categorize every expense and credit while also avoiding duplicating items that can lead to bookkeeping nightmares when it comes time to reconcile. There are many free charts available online to give you a solid idea of where to get started, and programs like QuickBooks actually insist on helping walk you through the process when opening a business.
9 – Doing it all Yourself
You would not want to be your own lawyer in court, just like you do not want to be your own bookkeeper. It is time-intensive and easy to make mistakes. Hiring a simple bookkeeper is more than worth the expense and time it will save you in the long run.
Stop trying to be a superhero. Operating a business or your personal life is way more manageable when you learn to delegate. Save yourself the headache and hire the help you need so you can avoid these common bookkeeping mistakes.
