Any thriving small business must rely on strong bookkeeping. It can help you understand how healthy your finances are, make rational decisions, and ensure you comply with the tax laws. However, many small businesses need to correct their bookkeeping, which can be a headache and drain their money.
These are the five most common mistakes made by small businesses in handling their books of accounts and some strategies for avoiding them:
1. Personal Business Intermingling
That is asking for trouble. Separating personal expenses from business expenses is vital for accurate record-keeping and tax filing. Start a separate business bank account and credit card, where you will track every transaction related to your enterprise.
Pro Tip: determine how to handle receipts and invoices easily in your company. Assign a physical folder or use a digital system to store them conveniently.
2. Poor Records Keeping
Scrimp on record-keeping at your own risk. Keep receipts, invoices, bank statements, cancelled cheques, and documents supporting all income and expenditures in fine detail. This ensures that any deductions or credits claimed have the necessary documents at hand during taxation periods.
Pro Tip: Consider purchasing accounting software for small companies. These seamless programs allow one to input data smoothly. Organize transactions into groups and generate reports about significant issues such as our financial conditions.
3. Overlooking Bank Statements Reconciliation
To identify discrepancies or errors, you must frequently reconcile your bank statements. This implies comparing what appears on your actual bank statement with what you have recorded internally so that they can tally up perfectly, reconciling unreconciled statements, which often leads to missed revenue or interrupting outgoings, negatively impacting the overall financial picture.
Pro Tip: Schedule weekly or monthly time frames for bank reconciliations, depending on how busy you get with other things, but stick to it. Always treat this process as part of good grooming habits for managing finances.
4. Lack of Differentiation in Cash Flow and Profitability
Earnings are the amount of money you make from your business by subtracting the expenses involved. However, cash flow refers to the money coming in and out of your business. Therefore, even if a business is profitable on paper it must be able to handle both situations.
Pro Tip: Use cash flow forecasting to anticipate future income and outgoings. This will help you prepare for coming due bills and avoid being caught short unexpectedly.
5. DIY When You Shouldn’t
In small-scale enterprises, their owners have many roles, including bookkeeping, but this can become complex, especially with large transactions or complex tax implications. Errors and loss opportunities may arise when entrepreneurs choose this option for themselves.
Pro Tip: A qualified professional should handle your bookkeeping services externally. As a result, while ensuring that your books are always up-to-date, focusing on running one’s entity without spending much time on record-keeping tasks is possible.
Focus on Your Business, We’ll Handle the Books
WiseWealth can be ideal for individuals who want an all-in-one bookkeeping solution and peace of mind. Through WiseWealth’s assistance, establishing a proper system becomes more accessible since it ensures adequate documentation of activities, allowing one to concentrate on running their business as efficiently as possible. Wondering how much are bookkeeping services? Consult with us and find out!
