Updated: Dec 26, 2020
Your small business success depends on the quality of service or products you offer to customers. Without applying best practices for your company's bookkeeping, that success can suffer.
Doing what you love, and serving clients could be what helps you stay passionate about your business. However, many small business owners struggle when it comes to tracking finances and keeping up with the books.
Without a bookkeeper, navigating the numbers and paperwork on your own can ruin your hard work! Watch out for these seven common bookkeeping mistakes.
1. Not Saving All Receipts
Yes, we mean "all" receipts! That small receipt for coffee with a potential client might seem like a hassle to log as an expense, but those small amounts add up.
As you work through your taxes with a professional bookkeeper, you could miss valuable business expenses that can reduce your annual tax payment. To protect your business from a potential CRA audit, avoid estimating how much you spend on receipts under $75.
Track each receipt and keep a backup that supports all of your business expenses.
2. Mixing Business and Personal Spending Together
When your personal and business expenses blend together, it's challenging to track the costs you can count toward deductions. Even if you are a sole proprietor without a lot of business expenses, it's best to keep a separate record and account for your personal purchases.
Keeping good records helps your bookkeeper recognize the expenses that can benefit your business deductions. You'll help them save time and improve the accuracy of your tax filings when personal expenses track to a separate account than your business purchases.
3. Applying the Wrong Category Codes
Categorizing your expenses correctly becomes a critical task when keeping track of your company's finances and taxes. Using the wrong category for specific costs can change your tax payments and deductions. Too many items with the same category codes or descriptions can also cause red flags for the CRA.
Your bookkeeper can help you apply the right category codes and descriptions for types of expenses and deductions. Without their guidance, you could pay more (or not enough) annual business taxes.
While it can be tempting to put too many expenses into a blanket category, you could do more harm than good when working with your bookkeeper. Accurate coding for every expense helps protect your company and enables you to maximize business deductions.
4. Neglecting Reconciliation
Once a month, you probably balance your bank account or credit card receipts with your personal accounts. Checking your expenses against your receipts helps you find fraudulent charges or keep up with funds in your personal bank account.
Business owners need to reconcile bank account statements and receipts regularly. A professional bookkeeper can help when reading financial statements. Confirming expenses and monitoring cash flow helps business owners protect their businesses and stay up-to-date with costs versus income.
Keeping track of reconciliation on a monthly or quarterly basis also makes your bookkeeper's job easier when it's time to file business taxes. They can anticipate your deductions and simplify the filing process—saving you some time and money during tax season.
5. Not Applying Sales Tax
Sales tax can become confusing and frustrating without professional guidance. However, ignoring your responsibility to track and report sales tax isn't worth it.
Every business owner must comply with local taxes for the products or services you sell every year. Your bookkeeper can help you understand the sales tax that applies to your business. Tax mistakes can trigger an IRS audit and expensive penalties that hurt your company's income.
When reviewing and reporting sales tax:
Charge the correct amount of sales tax that applies to your business
Deduct the amount of taxes you collect from your sales when filing taxes
Pay the right amount of taxes
Using a professional bookkeeper helps you avoid sales tax mistakes! Let them guide you through how much to charge, track, and pay every year.
6. Failing To Track Petty Cash
Most businesses have a stash of petty cash for small expenses, quick payments, or the occasional employee thank-you treats. Keeping cash on hand is a good business practice—as long as you track and protect your cash.
Using petty cash qualifies as a business expense. Business owners should:
Always know how much cash in your petty stash
Store it in a locked drawer or safe
Restrict access to petty cash
Require receipts for all petty cash purchases
Use it sparingly
Petty cash isn't a free stash of money to use for a quick run to the coffee shop or personal expenses. Make sure every use of this cash can be traced to a justifiable business expense that your bookkeeper can record and process during tax time.
7. Doing It Yourself
Your business is a success because you are good at what you do, Whether you offer a service or create a product to sell, focusing your time and expertise on serving customers is a priority.
If bookkeeping isn't your passion (or one of your better skills), hire a professional bookkeeper to handle your company's finances. Spending too much time tracking down receipts, filing expenses, and balancing your books can take away from what you do best: providing excellent customer service and products that help grow your business.
It's tempting to want to save money and do as much as you can on your own when you have a small business. However, a professional bookkeeper is one of the best investments you can make for your business. Plus, a bookkeeper helps you maximize deductions and avoid mistakes that could happen when doing the bookkeeping on your own.
Avoid These Bookkeeping Mistakes
Your small business needs every advantage for success and growth! Hiring a professional helps you avoid expensive bookkeeping mistakes for your company.
Choosing Sync Bookkeeping means you have the professional bookkeeping services you need for your small business—without a full-time in-house staff person to do the job. Let us help! Contact us to learn more about our monthly bookkeeping services.