Without the knowledge of proper accounting procedures, mistakes will happen. Many business owners fail to keep accurate records and this can affect business financial information and operations. Even if you have an experienced bookkeeper in place, it is not a guarantee that mistakes will not be committed.
Here are the most common bookkeeping mistakes that every business owner should be aware of. This can save you from unnecessary stress, misinformation, and pitfalls that can affect your company negatively.
1. Combining business and personal finances
Mixing personal and business finances can make your business financial information a bit unorganized. It will also become difficult to determine profit, operating costs, and other important financial data. This is why as soon as you’ve started a business, you should also open a business checking account. This ensures that funds and money taken in by the business are to be specifically used only for business purposes.
Another mistake is many business owners pay their expenses using their personal funds. This makes the accounting record inaccurate.
2. Losing track of petty cash funds
Many business owners use petty cash. However, not all of them keep track of their petty cash funds. Not because you’re spending a few dollars for some office supplies, you will not record it to your accounting books. Small purchases can easily file up and if you are ignoring them, it can result in serious problems.
To track overall cash flow, everything should be in proper documentation. It helps with having a petty cash fund policy- receipts should be attached to every purchase made. Also, allow someone to manage it and approve purchases to control proper spending funds.
3. Not Reconciling Bank Accounts
Bank reconciliation is something that you should not ignore. Businesses should do it at least on a monthly basis to avoid errors and prevent fraud. Reconciling business account records to the bank detect any discrepancies and identify any unusual transactions that can cause accounting errors and fraud. Doing this consistently on time eliminates major problems and keeps a company’s financial health at good shape.
4. Forgetting to save every receipt
You should keep every receipt and not always rely on bank and credit card statements. Throwing receipts can lead to big accounting and auditing problems in the future. Without receipts, you will not have any back-up documentation which is crucial in the auditing process.
It’s simply hard to claim an expense if you don’t have any receipt to prove it. Receipts serve as your protection and keep everything transparent. For easier retrieval, you can snap a picture of your receipt and keep electronic records. Put them in a digital folder with associate register entry.
5. Failing to Back-Up Data
While keeping hard copies of all your records is generally a thing of the past, don’t rely solely on cloud hosting to ensure your data is always accessible. Make sure your accountant or bookkeeper uses software with a fail-safe data backup system and consider keeping two or more digital copies of each record, one in the cloud and one safely and securely on your desktop or hard drive.
In this digital age, it’s very tempting to go paperless. Well, while that may be good, it’s not always the best choice. For sure it helps, but you should not solely depend on it. Back-up your data with hard copies like paper documents and hard drives. This will help in the event of a computer’s technical problems and cloud hosting issues. Doing this will eliminate worries of losing data but making it more accessible.
6. DIY Bookkeeping
We get it – business owners want to save money. To do this, they attempt to do the bookkeeping thing themselves. Most of these self-professed financial experts really don’t know what they are doing when it comes to managing their own books.
A bookkeeper has the right skill and expertise to do the job efficiently and quickly. They know how to spot errors and are aware of tax changes and other financial practices. Hiring a professional bookkeeper will save you time, money, and effort. It’s a great investment that pays off in the long run.
If money is your problem, there are remote bookkeeping services out there like Act Bookkeeping Group that can work on your needs and budget. Hiring a bookkeeper doesn’t always need to be in-house and full-time. If you’re on a tight budget, you can hire someone on a part-time or ‘as needed’ basis.