Common Mistakes When Bookkeeping for Small Businesses

Description: Article covers some of the major mistakes business owners make in an attempt to save money and prepare accounts themselves.

Business success or failure starts with good bookkeeping. It is impossible to tell whether the company is making or losing money without accurate recording of data. Accounting is also important for tax purposes. Because small businesses have limited resources to dedicate to other functions, owners tend to prepare accounts themselves. This can cause many unintentional errors that end up costing the business in the long run. The following are common mistakes that occur in bookkeeping for small businesses.

Inadequate Records

The lack of proper data records is one of the biggest mistakes made by business owners. Documents such as receipts and bills can add up to misrepresent accounts. The most common occurrence is when owners pay small bills out of their own pocket and forget to include them in the accounts.

Such mistakes are discovered only during an audit, when it is too late. This is because consequences of mistakes, whether they are genuine errors or not, can be serious. Thus it is important when bookkeeping for small businesses to focus on all expenses.

Lack of Back Up

Businesses today are extremely dependant on computers resulting in zero physical copies being available. If the bookkeeping computer isn’t backed up and the files get corrupted it can result in a complete loss of data. This is true whether the company is preparing accounts in-house or outsourcing their bookkeeping needs. Today, small businesses hardly print out their final accounts.

Lack of Coordination between Management and Accountants

While outsourcing ensures that accounts are accurate and comply with all guidelines there may be a problem when there is little communication about business processes and functions. When bookkeeping for small businesses is outsourced there can be a lack of coordination between the two parties. Hence, accountants should be involved with business owners so they are aware of the future needs of the company.

Employee Classification

The work environment has changed drastically over the years. This is because both employees and contract workers are included as business staff. Both types of workers have different tax requirements as a result of eligibility of benefits such as insurance. This and other regulation such as wage laws makes the differentiation key for accounting purposes.

Sales Tax Issues

Sales tax is usually deducted at the source as withholding tax. Although it is different than income tax, many business owners who practise “DIY accounting” overlook this information and make the error of classifying it together. This can result in heavy fines if it is understated and will cause a loss to the owners if it is overstated.

Conducting Bank Reconciliations

Several mistakes can be detected if bank reconciliations are conducted at least once a month. This involves comparing bank statements against the cash book prepared by the business. A regular check will guarantee that small problems do not become bigger in the future and cause trouble.

How do you avoid these pitfalls? Your best bet is to record all dealings even if they seem irrelevant. Additionally, small business owners need to invest in working with a quality accounting firm. The assistance of a professional accounting agency will help reduce all of the hiccups found when bookkeeping for small businesses.

About the Author

Anthony Azevedo, CPA is the managing member of EZCFO. They are a company focused on bookkeeping for small businesses.

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