4 Small Business Bookkeeping Pitfalls to Avoid
Small business payroll and bookkeeping need to be done with accuracy and consistency, no matter the size of your company. Unfortunately, not every business prioritizes keeping its records organized. Some common mistakes are repeatedly made by most companies, to their detriment.
The good news is that it is simple to identify and avoid because these mistakes are so widespread. By avoiding these four typical bookkeeping mistakes, you may save yourself time, money, and headaches:
1. Not Closing Books at Month’s End
Delaying the closure of books at the end of the month is a simple trap that newly formed businesses fall into. Because so much comes at you so quickly, it's all you can do to keep up with paying your bills and invoicing your customers as the orders come in. It may be overwhelming to take the time to balance everything at the end of each month.
You don’t want to be constantly overwhelmed by a lack of discipline when it comes to month-end closing. Regularly monitoring your company's financial health is a dependable method to monitor unpaid payables and receivables, the performance of product lines and employees, thus, helping you make sound business decisions.
2. Not Distinguishing Between Business and Personal Finances
Failing to distinguish between business and personal finances is another common trap for new entrepreneurs. When it's your company, it's natural that you don't properly separate your personal and business finances.
At face value, it may not matter if you buy computer equipment for your new firm with your personal credit card instead of a business credit card as long as the payments are paid. However, the gap will be evident if bills are not paid on time. You may lose personal asset protection in a business bankruptcy or litigation if you have not attempted to separate your personal and business affairs.
There is a chance that you will lose your house or other assets when you use them to augment your company’s finances. Citing a legal principle, creditors may claim your assets if you fail to distinguish between your personal and business finances.
3. Not Having a Second Set of Eyes to Audit Your Books
Mistakes are inevitable even when working with a dedicated and honest team. Bookkeeping mistakes can cause you to lose business relationships with customers, vendors, your CPA, the IRS, or any combination thereof.
Moreover, tracking down the inaccuracy takes time. The missing decimal place is noticed before the client is invoiced, the vendor paid, or your tax records are delivered to your CPA for examination.
When a single person is in charge of auditing and paying the company's expenses, unintended judgment errors can happen, and the temptation to commit fraud is also vital. Outsourced controller and bookkeeping services can help mitigate this risk.
4. Not Utilizing a Payroll Provider
Some business owners save money by manually slashing their employees' salaries. Calculating withholding taxes might be challenging if some of your employees live out of state and work part-time or full-time from home.
As the business owner, you are responsible for underpaid employment taxes and regulatory violations. Not to mention the added distractions of the impact on employee morale if you underpay or overpay someone. Their benefit programs include calculating paid time off and other human resources duties connected to payroll.
You can also hire a payroll service provider. Accounting software like QuickBooks helps businesses manage their customers, vendors, clients, inventory, and money. It calculates sales tax, monitors products, and changes transactions in your register, customer, and vendor categories.
Conclusion
Few things in life are more personally satisfying than starting your own business and making it thrive. Starting a business can be financially profitable and easier to maintain if you do well with the basics, including avoiding bookkeeping blunders.
At Totally Booked, we provide simplified financial management services to help you as you grow your business. We are your go-to company when it comes to small business bookkeeping services in NY, such as accounts payable and receivables, budgeting, payroll, app connections, sales tax, custom reports, bank reconciliations, and much more. Contact us today!