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Small Business Bookkeeping: Common Bookkeeping Mistakes that may put your Business at Risk

Small Business Bookkeeping: Common Bookkeeping Mistakes that may put your Business at Risk

Bookkeeping, accounting and income tax filing is one of the most challenging and important aspects of running a business. Even small errors in bookkeeping can be damaging or worse deadly for businesses; however, by hiring the services of a professional tax preparer and bookkeeper.

For the small business owner, bookkeeping is often seen as one of the necessary evils that we all must face. The monotonous and everyday errand of bookkeeping can frequently take up hours and hours of time.

This is the primary reason that well over one-half of business owners and entrepreneurs do not keep their finances up to date on a monthly basis.

As mundane as it may seem, bookkeeping is really your greatest secret weapon when it comes to developing and managing your business. In this article, we are going to discuss some most common bookkeeping mistakes made by small businesses. Let’s have a look.

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Mistake #1 Improper or Poor record-keeping

Poor or improper record keeping is a very common mistake made by small business owners. It is easy to lose receipts or disregard little expenses that seem insignificant. Maintaining accurate records on a regular basis with a well managed filing system can save you time and money on your income taxes.

In addition, it can also offer the necessary documentation in the event that you are audited by the IRS. In case of a potential audit, accurate records of expenses and income could end up saving thousands of dollars in federal taxes.

Mistake # 2 Improperly Categorizing Expenses

If you or someone you have hired does not have the knowledge of formal accounting and bookkeeping practices, this can be a serious problem. Accurate tracking of income and expenses in the correct categories ensures accurate measurement of profitability. Having a good understanding of the different tax treatments of income and expenses can also help improve your tax savings.

Mistake # 3 Not Reconciling Bank Accounts

Not having separate ledgers for personal and business activities can become a serious issue. When audited, you may need to provide complete records of business related activities that are separate from your personal expenses. It is of paramount importance for you to make sure that your bank statements are reconciled properly. This will not only help you identify potential errors but will also minimize serious errors.

Mistake # 4 Failing to track reimbursable Expenses

A number of business owners pay for expenses out of their personal funds. As time passes, there is an increased risk that these expenses get neglected, ignored or forgotten. Failure to keep a track of reimbursable expenses can result in lost money and lost tax deductions.

Mistake# 5 Poor Management of Petty Cash

Business owners often operate their businesses with a small amount of petty cash, but they have poor understanding of how to track it. It is important to be carefully set up a system that allows you to track the cash kept on hand for the business and what it is being used for.

Investing in a petty cash lockbox from your local office depot and obtaining receipts for all disbursements is an awesome way to begin.

Mistake # 6 Poor Communication

It is of critical importance for you to make sure that the communication between the company employees and the bookkeeper are strong. It is important to keep your bookkeeper involved and informed of what is going on within your company. This helps the accountant to create financial statements that truly reflect the operational needs of your business.

Mistake # 7 Wasting too much time

To embrace the changes that are thrust upon us, businesses need to understand how getting the services of a professional bookkeeper can shape the future of their organizations and help them gain an edge over their competitors. Very few businesses have the power to fundamentally transform an organization – outsourcing is one of them.

Even today, some businesses have not fully grasped the complete idea of outsourcing nor have they fully exposed the potential advantages and monetary savings from which their small business could benefit. In fact, it is one of the most powerful tools available for building successful companies, creating new jobs and improving economic growth.

By hiring professional bookkeeping and tax preparation services, you can very easily avoid these small business accounting mistakes and save thousands of dollars in federal taxes.

Bottom line

While audits and income tax filing may sound scary; with properly kept financial records and well-kept books, it can be a pretty straight forward process that can help you determine how well you are meeting your business goals and objectives.

In simple words, in today’s rapidly changing business landscape, business leaders can no longer afford to approach outsourcing as a deliberate response to specific change initiatives. In order to stay competitive, it needs to be approached as an integral part of how they think about and approach their operations.

 

Nevertheless, in order to reap the real benefits of outsourcing, businesses need to have a consistent management system in place, through which they can evaluate and prioritize potential opportunities in terms of their impact, the benefits they offer and the risks associated with them.

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