A lot of small business owners possess a lot of skills under their belt that they utilize to keep their business strong and successful. But most of the time, bookkeeping isn’t at the top of their list. Inaccuracy on your books can harm you in the long run so you either hire an expert to handle your accounts or study and learn the basics.
Bookkeeping is about collecting information, recording events, and organizing those records to make better decisions. Accountants use the financial transactions recorded in ledgers or “books” to create a company’s income statement and balance sheet.
With proper knowledge, companies can track all information on their books to make key operating, investing, and financing decisions. Once events are recorded and properly categorized, we can organize everything and start making things better.
Fortunately, common bookkeeping mistakes are easily fixed the sooner you notice them. Here’s a list of bookkeeping errors that you might experience and our advice on how to avoid them.
1. Improper or poor record-keeping
Sometimes, we trust our memory too easily and just take note of some of the records that we do. Unfortunately, with a lot of stuff going on with your business, it’s easy to forget those small expenses that’ll soon pile up and cause damage to your books. It’s better to create a proper filing system so that you can maintain accurate records. Proper documentation is also advised in case of a potential audit. This won’t only save extra time but also money on your income taxes.
2. Not having backups
Nowadays, most of our records and data are kept safely with the help of technology. With just a simple click, you have access to a lot of information that you need for your business. Although there’s always a chance for issues or errors to happen so you need to be prepared. Our advice is to regularly update and backup your files every two weeks to avoid any potential losses.
IDrive Team is an excellent choice for a small business cloud backup. It has a lot of features and can support both small offices and remote workers. The software gives five users an account that has 5 TB worth of cloud backup that makes it easy to manage a team instead of juggling five separate accounts.
3. Poor communication
Communication is always the key. Your bookkeeper needs to be involved with what’s going on inside your business. This will create accurate financial statements for your company.
4. Not classifying employees properly
Is that new worker an employee or an independent contractor? A simple mistake won’t just mess with your records, it can also cause misfiling and problems with taxes and paperwork. Make sure that they are properly classified so you wouldn’t have to experience the hassle of classifying your crew again. Here’s a quick guide on how to differentiate your staff properly.
5. Mixing business and personal spending
If you mix personal and business expenses in the same account, it can result in unnecessary problems when you need to file taxes or do your bookkeeping. You also risk losing track of important transactions. The simple solution? Create a business bank account and separate your business transactions and personal expenses.
6. Late payments
A full sales book is a beautiful thing, but it’s nothing if your customers haven’t paid yet. As a business, you provide a service or product and expect to get paid. Make sure to set strict deadlines or terms for your customers and chase every late payment. A lot of bookkeeping applications offer a feature that reminds them of their upcoming or late payments. The FreshBooks software even lets you know when a customer has opened your invoice so you can avoid receiving excuses for their delayed payments. Without attentive credit control, a small business can easily develop a cash-flow crisis.
7. Wasting time on unnecessary tasks
As an entrepreneur, you believe that time is money. But a lot of business owners do not put enough value on their time and focus on tedious and time-consuming tasks such as bookkeeping that should be done by professionals. A proper bookkeeper will know what to do, how to record data, and how to organize all the information that your business will provide.
If you either want to continue to do the bookkeeping for your own business or hire an expert, these are some qualities that will help you in the long run.
Being organized. Since being a bookkeeper involves doing a lot of repetitive and routine tasks, being organized on top of a lot of things can help you complete these tasks in a timely fashion. With excellent time management skills, you can easily prioritize important jobs and identify what you need to do first.
Good communication skills. As the one who handles the financial reports of the company, you are expected to be knowledgeable about the business’s finances. Since a lot of information needs to be presented, you need to be prepared to explain and answer any questions regarding the numbers.
Having an observant mind. Since you handle the financial reports of the business, you are also required to investigate why certain deductions on your accounts are higher than expected. You need to double-check and examine all numbers involved to decide on a proper solution for the problem.
Keep your bookkeeping mistakes in check. It’s common for beginners and even experts to have mistakes in their bookkeeping from time to time. This is easily avoidable if you take note of some of the common mistakes that you usually do and use it as a simple exercise to improve your skills while working. Make a list of your mistakes and remove them one by one until you’re finally an expert when it comes to bookkeeping.
Plan ahead. For any kind of work, it’s always a huge help in the future if you plan things ahead. If you look at your previous financial reports, you can usually spot the times when a bit more forward planning would have saved you money and stress. Identify and anticipate the major expenses and likely business costs for the year and implement them in your business plan.
Being updated when it comes to technology. A lot of bookkeeping routines require a working knowledge of data via the Internet and using spreadsheets to prepare charts for your financial reports. Since some bookkeeping systems can be accessed on the computer, it also helps if you are up to date with the new technology involved in your industry.
It’s great to know that a lot of bookkeeping software is now accessible online to help you with your job, but how do you know which is the right one for your business?
First, you need to identify your needs. What are the most common things that you’ll need and hope to achieve online? Make a list and check if the software you are looking at meets the criteria. Second, think about your budget. Now that you know which software you want, you need to check on how much you can afford to spend on bookkeeping software. Keep in mind that a lot of packages can be paid monthly, quarterly, or annually so make sure to include this when you decide on software. Lastly, check the other features of the software. Most of the time, you might find yourself paying for a lot of items you don’t need. Check your list again and choose the software that meets the majority of your needs.
Intuit QuickBooks Online
Price: Starts at $8/month
- Intuit QuickBooks Online offers receipt capture, 24/7 chat support, and integrations with Paypal, Shopify, and Square. It allows you to track income and expenses, send invoices and receive payments, run reports, send estimates, track sales and taxes, and capture and organize receipts. If you opt for an advanced plan, it allows you to track inventory, time, and even run full-service payroll.
Price: Starts at $15/month
- FreshBooks integrates with many business applications and provides you with a single dashboard to manage your finances and accounting. Regular secure backups are included and you keep track of your business at all times with their mobile app.
Price: Starts at $9/month
- Zoho offers excellent support, the ability to accept payments online, balance sheet creation, and an easy-to-read dashboard for its users. It’s perfect for helping your small business manage cash flow and finances.
Price: Starts at $4.99/month
- GoDaddy Bookkeeping is a low-cost option that integrates with and imports data from Amazon, eBay, Etsy, and your bank accounts. It helps you in creating invoices and calculating quarterly tax estimates based on the harvested data.
Price: Free; advanced plans start at $15/month
- Zipbooks give you invoicing and billing features such as auto-billing and payment reminders to decrease your admin work. You can utilize their competitive intelligence to make data-driven decisions about your finances.
Bookkeeping may sound like a tedious task, but at the end of the day, every other role in your business depends upon it. Having a trusted bookkeeper behind your finances gives you the freedom and confidence to keep your business strong and healthy.