No business can escape the dreaded task of bookkeeping. Tax preparation and pension audits are at the heart of small business success. This means that even small mistakes can take a toll on your company’s budget and development. But some problems are so subtle that it is difficult to identify them immediately, especially if the accountant isn’t experienced enough.
Here are 6 common bookkeeping mistakes that you need to be aware of. By paying attention to these pitfalls, you can avoid the financial headaches associated with accounting.
1. Failing to properly classify employees
Because of a wide variety of independent contractors, experts, and freelancers, it can be hard for you to identify who is on staff and who is not. To prevent mistakes associated with staff, you need to properly classify all employees in your company. Failing to classify employees or contractors can have serious consequences for your company. In case of misclassifying, you run the risk of tax penalties and lawsuits.
2. Not having a paper reserve
When it comes to audits, most people prefer digital programs to save all information. But a paperless office can cause serious obstacles, especially in the case of technical problems.
Some taxing authorities prefer to see a paper example, clearly visible documentation, and a well-organized system of paper backups. Digital programs that save your receipts can make your business routine easier, but it’s still important to have paper reserves for at least the past seven years.
3. Neglecting to save small receipts
While the receipts under $75 may not be required by the IRS, they provide reserve documentation for many of the deductions you might need. Keeping them in a folder or box is necessary in the case of an audit. If you don’t want to store tines of paper in your office, use special programs.
Many digital accounting programs offer an accompanying app that allows you to take a picture of your receipt and connect them with a suitable register entry. If you don’t have a digital accounting program, there are a lot of third-party apps to choose from.
4. Ignoring petty cash
If your business operates small amounts of cash you need to have a responsible person who can manage it and approve expenses. This ensures accountability and helps you decrease the risk of potential abuse, theft, and fraud. It is important to have clear rules about petty cash purchases. Any expense made with small amounts of cash should have a receipt to keep clear documentation for deductions come tax time.
It is important so that receipts, remaining cash, and original dollar amount designated to the fund matches. When the cash ends, you can place a check for cash to set up the full amount again. Having a poor petty cash policy, can cause serious financial headaches and may result in problems with tax authorities.
5. Not communicating
If you decide to hire a part-time bookkeeper or outsource the work to an accounting firm, it is important to stay in touch with a specialist for effective bookkeeping. It helps both of you to stay on the same page and minimizes the risk of mistakes.
One of the most common mistakes that make managers who hire a remote accountant is paying someone a bonus and failing to report it to the bookkeeper. Another is buying something and not providing the bookkeeper with appropriate receipts.
6. Trying to do it yourself
One of the biggest problems of small business owners is doing books themselves. If you aren’t a bookkeeping specialist, it is recommended to dedicate your tax preparation to a professional. Competent specialists have the required skills to do the job quickly and efficiently without mistakes. They know about recent tax changes that can affect your financial systems. Hiring a professional bookkeeper is extremely beneficial and will save you time and money in the long run.
