The 5 biggest mistakes small business owners make with their accounting records
If you run your own small business you must keep good accounting records.
Studies show that small businesses with poor accounting records are generally destined to failure whereas businesses with good records have a much better chance of survival.
So here are some common mistakes to avoid in keeping good records.
Mistake 1: Not Balancing Your Records to Your Bank Account
Reconciling to your bank statement ensures that everything that has gone through your bank has been included in your accounts. It’s one of the first things that both an accountant and a tax auditor will look at.
If you don’t balance your books to your bank account:
• your accountant or tax preparer has to do a lot more work meaning more cost for you
• you may well be paying more tax than necessary as you could be missing expenses that could be claimed as tax deductions
• you are at risk if you get a tax audit and the tax inspector will spend a lot more time drilling down into your affairs because they will not believe you have taken due care in keeping your records
Be disciplined to balance (reconcile) your records to your bank statement every month.
Mistake 2: Not doing the books often enough
Bookkeeping is often a chore at the end of a long day. But doing your books regularly will save hours of time by not having to track details that you cannot remember.
Mistake 3: Not recording cash payments
Many small business owners pay cash out of their pocket for business expenses. But not recording these expenses can equate to thousands in lost tax deductions.
Keep an envelope in a strategic place so that all cash receipts can be put into the envelope and entered into your records at the one time. And make sure you get a receipt for everything!
And get a simple bookkeeping system like ‘Accounting Sux’ that makes it easy to record cash payments.
Mistake 4: Not recording enough information about transactions
My experience as an accountant is when many small business owners visit their accountant they bring their bank statements, receipts or even their computer records… and a bad memory!
Do this at your peril! When everything is fresh and current, you need to add an explanation next to every transaction that is not obvious to someone else such as your accountant or a tax auditor.
You will save hours with your accountant, have a stress-free end of year and peace of mind if you get a tax audit.
Mistake 5: Trying to use an accounting software program beyond your level of expertise.
This mistake is often the most costly of all.
Most small business owners have not been trained in accounting yet the vast majority of accounting software requires a high level of understanding.
Unless there is a specific need, most small business owners would be much better off with an easy system that allows them to accurately track money coming into their business and the money that goes out. If they issue invoices then they also need a system for that and to track the money customers owe them.
This will provide you with records that actually HELP you understand and manage your business while actually minimizing the time your accountant needs to spend preparing tax returns. And the best part is: you can get on with running your own business instead of trying to be an accountant.
If you want an easy program to keep your business records, we recommend ‘Accounting Sux’ at www.accountingsux.com