Bookkeeping is often seen as one of the necessary evils that one must face while running a small business. The tedious task of bookkeeping can often take up hours and hours of time and isn’t the most exciting thing. This is the primary reason that well over half of small business owners and entrepreneurs do not keep up with their books on a monthly basis.
The importance of bookkeeping cannot be stressed enough when it comes to running your own business. Many businesses, which otherwise have been successful, have been dragged down by their failure to maintain proper financial records. If you don’t feel like you can keep up with the demands of your books, outsourced bookkeeping services may be a perfect and affordable solution for your small business.
While it is typically not one of the more glamorous jobs, bookkeeping is at the heart of a company’s success, and errors can cost the company significantly. Below we have highlighted common errors that small business owners often make when they turn to DIY bookkeeping
1.Mixing business and personal spending
Mixing business and personal may sound like no big deal, but it can be pretty messy. When you’re mixing business and personal expenses, you’re putting yourself at major risk for an IRS audit. To ensure you don’t end up with a stressful audit, you should know how to define and separate business and personal expenses.
Deducting business expenses as personal has another big danger: back taxes. If the IRS discovers that you deducted personal expenses as business expenses, they may charge a penalty for claiming false deductions and demand payment of the balance with penalties and interest if the filing deadline has passed.
Don’t do it. If you are unsure, ask your local CPA. It is much easier to make a quick phone call today then have to adjust a year’s worth of books down the road.
2. 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.
3. Not properly classifying employees
The proliferation of independent contractors, consultants, and freelancers has made it difficult to determine who is on staff and who is not. This results in misfiling when it comes to filing taxes since there are different rules and regulations for employees and non-employees.
4. No Backup
We live in a world of heavy dependence on technology where issues can suddenly arise. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems.
5. Incorrectly Classifying Employees
This tends to be a big problem for companies that make use of any combination of freelancers, consultants, employees, and contractors. Having so many different kinds of employees can make it challenging to determine who is on staff and who is not, which can lead to mistakes come payroll and tax time. Make sure you have all of the people who work for you classified under the correct category for tax purposes.
6. Failure to perform monthly reconciliation
Every month you should make it a point to reconcile your books with your bank statements. There are a lot of businesses that simply skip this task, or will make errors by doing it incorrectly. Working with a professional bookkeeper can eliminate these simple errors.
What do Outsourced Bookkeeping Services Do?
Outsourced bookkeeping services are responsible for processing the paperwork for a company’s business transactions. Ultimately the transactions will be recorded in accounts within the company’s general ledger. Today this often involves the use of cost-effective software such as QuickBooks from Intuit.
Outsourced bookkeeping services are expected to be accurate, efficient, and knowledgeable about debits and credits, the chart of accounts, accounts payable procedures, sales and accounts receivable, payroll, and more. Each bookkeeper’s specific responsibilities will vary by type and size of the business. However, these are the most common tasks that bookkeepers tend to tackle:
- Record financial transactions
- Reconcile bank accounts
- Manage bank feeds
- Handle accounts receivable
- Handle accounts payable
- Work with your tax preparer and assist with tax compliance
- Prepare financial statements
- Take on some payroll and human resource functions
- Make technology and process streamlining recommendations
The bookkeeper’s role may be expanded to include adjusting entries in order for the bookkeeper to generate income statements and balance sheets from the accounting software. Your bookkeeper’s work is usually overseen by an accountant and/or the small business owner.
Limitless Investment and Capital’s Outsourced Bookkeeping Services
Our experienced team of accountants deliver more than just numbers—we deliver accuracy, efficiency, and insights across your business. We believe that accounting is not a cost, but an investment – one that has a strong ROI. We are NOT just bookkeepers. We are proactive accountants that will help you grow the company, make the impact you want, and develop a team that is forward thinking. Call us TODAY to get started!