Recent statistics from the U.S. Small Business Administration reveal that about half of small businesses fail within the first five years of operation. Poor financial management is often the major cause of this failure. Being aware of the following common bookkeeping mistakes will keep you from being part of such an unfortunate statistic.
Combining Business and Personal Finances
Blurring the lines between business and personal finances is never a good idea. Using the same account to pay for personal bills and business expenses can cause confusion when it comes to taxes. Small business owners can leverage deductions and tax credits. If your financial records are mixed up, it can be difficult to pick out individual deduction. This means you will end up paying more money than necessary.
Read more about Importance Of Keeping Separate Accounts For Business Transactions.
Forgetting to Track Petty Cash
Businesses often use petty cash to cover for small purchases like office supplies, employee lunches, and postage. Small purchases, however, tend to add up fast and can go unnoticed. Failing to keep track of these expenses will make it difficult to reconcile budgets and track overall cash flow.
Failing to Reconcile Bank Accounts
Bank reconciliations should be done regularly to identify discrepancies in your finances. By doing this, you can catch fraud and cash manipulations early before they become problems later on.
Throwing Receipts Away
Receipts are often disposed of because they’re seen as desk clutter. In reality, they’re just as important as profits. Expenses pile up real quick. These pieces of paper are transactional records that can be used to assess spending habits.
Going Completely Paperless
In a world that’s becoming more digital by the second, going paperless seems to be the obvious choice. In bookkeeping, however, best to leave paper trail behind. By doing that, you can rest assured you’ll have physical backup of your financials.
Few smalll business owners have bookkeeping experience and accounting knowledge. Thinking that having software and and technology are enough to compensate for lack of bookkeeping can be detrimental to the business. It’s always in your best interest to hire an expert bookkeeper to crunch numbers for you.