Small business bookkeeping often feels like a chore for most business owners but is most certainly a necessary evil that we all must face. Especially in light of the pandemic, it is even more critical you have financial data to help aid in making important decisions for your business when you may be cash strapped. Bookkeeping is more than simply recording financial transactions in a ledger, bookkeeping can really make or break the success of your company, especially in turbulent times.
The U.S. Small Business Administration reports approximately half of all new businesses fail within the first five years, primarily because of poor financial management, internal record keeping, and bookkeeping mistakes. Worried you messed up your books? Don’t sweat it. Almost every entrepreneur makes at least one bookkeeping blunder while they’re learning the ropes. Thankfully, small business bookkeeping errors are easily fixed if you catch them early on. We compiled a list of common bookkeeping mistakes we see over and over again and how to avoid them.
#1. Improper or poor record-keeping
Bad records management leads to problems with a rippling effect and can be very serious when you need your records for things like taxes, budgets, or payroll. Although it sometimes may go unnoticed it results in a range of consequences, and if not detected early, it can potentially leave an impact as large as causing a company to close their doors.
It is easy to lose receipts or forget about those small expenses that seem insignificant. Maintaining accurate records on a monthly basis and with a proper filing system can save you time and money on your income taxes. It can also provide the necessary documentation in the event that you are audited by the IRS.
Records management aids businesses in achieving better bottom-line results and improving overall efficiency. By creating a well thought out records management plan and using a regular system audit and update process for your record-keeping you’ll avoid consequences down the road
#2. Improperly categorizing expenses.
Correct expense classification is not only crucial when it comes to tax time but also when evaluating the net profit numbers of your business. If expenses are classified incorrectly, your financial records will indicate an inaccurate picture of the health of your business. If you are miscategorizing your expenses, you are, essentially, sucking the life out of your business. There are several ways that you can prevent these problems from becoming a bigger issue in the future. Here are a few tips that you can try.
Talk to a professional – the best way to deal with business expenses as they relate to your taxes is to talk to a professional. Limitless Investment and Capital’s specializes in Small Business Tax Preparation and Assistance- Get in touch with their Certified Public Accountants Today!
Re-evaluate your expense categories regularly- As businesses grow and change, so do expenses. After completing your regular net profit calculations, take another look at costs with a focus solely on expense categories
Always Double-Check Your Work- We can’t stress the importance of double-checking your work. If you check your typing after you do it, you can prevent clerical errors from causing even bigger problems.
#3. Guessing your way through the task
Most entrepreneurs do not have a background or any experience with accounting. Since most business owners are busy with multiple other tasks, they tend to guess their way through bookkeeping when they aren’t fully sure what they’re doing. The problem is, your “guesswork” will accumulate over time and could add up to a year’s worth of incorrect books that need to be fixed.
Some examples include:
- Not categorizing expenses correctly
- Overlooking tax deductions
- Missing filing deadlines because the books weren’t done on time
If any of the above sounds familiar- don’t stress! Hiring a professional small business bookkeeping service may be in your interest and usually come at very affordable rates. They have the ability to clean up your books relatively quickly and ensure 100% accuracy and compliance with regulations. For now, trust that taking a “best guess” approach to do your books will come back to bite you in the butt.
#4. Neglecting Sales Tax
With many businesses, not reporting sales tax and not accounting for it is a common error in bookkeeping. Oversight in collection and reporting of sales taxes can result in significant fines and penalties. Alternatively, incorrect data entry may result in a higher total sales amount and overstated sales taxes due.
The IRS has little tolerance for error. If you misrepresent the number of sales or payroll tax owed by your company, you can expect hefty fines. It’s best to leave this one to the professionals, and double- or triple-check your returns before dropping them in the mail.
Our best advice to understanding sales tax is to get your CPA involved in the early stages of your business. If you haven’t consulted with a CPA yet, it’s never too late to schedule a check-in.
A good CPA can help you:
- Understand your sales tax obligations
- Collect sales tax correctly
- Know your sales tax filing deadlines
- File your sales tax on or before the deadline (the deadline for 2020 is July 15 due to the Pandemic)
#5. Not Hiring a CPA
Learning how to grow your business isn’t just a worthy goal, growing your business is often a necessity for your business’s survival and economic well-being. If you are serious about growing your small business, you need to hire a CPA
A great CPA will:
- Know how to maximize small business tax deductions specific to your niche
- Help you make year-end tax moves
- Explain your sales tax obligations
- Represent you during an audit
- Point out strategic financial decisions to make your business grow
Unless you are confident you can handle all of the above without help, give yourself peace of mind and let a pro handle these small business obligations.
#6. Not classifying employees correctly
Businesses often have a combination of both employees and independent contractors. Your business could face serious legal and financial consequences for misclassifying workers. This could include reimbursement for unpaid wages, including overtime wages, paying the individual’s workers’ compensation benefits, retirement contributions, employee benefits, Medicare and Social Security contributions, unemployment insurance, health insurance, and any other employee-related costs like back taxes and any applicable penalties for state and federal income taxes.
Limitless Investment and Capital’s Small Business Bookkeeping Services During the Coronavirus Outbreak
Bookkeeping and accounting are essential for your small business to survive. Not only do you need accounting for tax purposes, but you will also need financial data to help aid in making important business decisions. The pandemic is no exception, and your small business will need all the financial data possible to ensure you are making the best decisions possible given the scenario.
We are offering coronavirus relief packages to small businesses struggling in Denver, Phoenix, Gilbert, Scottsdale, Detroit, and Tampa
Call us TODAY! 1-800-314-0653