The 4 Bookkeeping Mistakes That Can Kill Your Small Business
You might think that having a great idea is the key to running a successful business, and you’d be somewhat right. But that’s not all you need to be successful. Having an amazing product is a nice start, but often times, it’s what goes on behind the scenes that determines the success of your business. More specifically, the success of your business comes down to being organized. Keeping the books might not be the most fun thing in the world, but if you don’t do it right, your business will fail.
With that in mind, let’s take a look at some of the biggest bookkeeping mistakes you need to avoid as an entrepreneur.
Mistake #1: Trying to do it all on your own
Let’s get one thing out of the way from the beginning – it’s always advisable to get help from a professional bookkeeper. Yes, as a small business owner, you do have to wear many hats and you don’t often have a lot of money to hire outside help for various tasks. However, this is one of the areas where you shouldn’t go it alone. Taking the DIY route with your bookkeeping could actually end up costing you more money. The IRS has strict penalties for tax mistakes, so if you mess up, it could end up costing you your entire business.
But that’s not the only way a bookkeeper can save you money. Chances are, you are making some critical mistakes with your record-keeping that are costing you money every single month. Take, for example, the story of Zalmi Duchman, chief executive of The Fresh Diet, who told Entrepreneur magazine that his company started saving up to $1,000 every quarter after hiring a bookkeeper to get their books in order. A professional bookkeeper can help you make informed decisions that help take your business to the next level.
Mistake #2: Not saving or organizing backup documentation
The fact is that we live in a world where audits exist. So if you send off your taxes and claim a bunch of deductions, you need documents to verify that all of the information in your tax return is completely accurate. That means you need to keep things like receipts, bank statements, invoices, employee data, and so on. All of these documents need to be stored in a safe place and organized in a manner that allows you to find whatever papers you need quickly and easily.
It’s also a good idea to make sure you have backups for all of your files. If all of your files are digital, you should make paper print-outs of all important documents. If you only have paper documentation, scan them into your computer so that you have a digital back-up as well.
Mistake #3: Not understanding the different classes of employees
This is undoubtedly one of the most commonly confused areas for small business owners. In today’s world of freelancers, contractors, and consultants, it can be tricky to figure out who is an employee and who isn’t. That means it’s also difficult to determine what taxes you need to file for your various employees and non-employees.
There are a few different factors that determine whether or not someone is an employee of your company. These include the individual’s work location, how much control you have over their work process, whether or not you provide the tools needed for the job, etc. If you schedule the worker’s working hours and force them to do the job in a certain manner, chances are that they could be an employee rather than just a contractor. So in that case, that might mean you’d need to file a W-2 form instead of a 1099. Again, this is where having a professional bookkeeper in your corner could be a great asset.
Mistake #4: Mixing personal funds with business funds
As a small business owner, it’s sometimes easy to blur the lines between personal funds and business funds. However, you can get yourself into serious trouble if you’re buying personal items with business funds or buying business items with personal funds. There are proper methods that must be followed when managing your transactions, so it’s important that you follow these and ensure everything is done properly. Once again, this is another reason to hire a professional bookkeeper.
Is bookkeeping the most exciting thing in the world for a small business owner? Of course not, but you can’t neglect it if you want your business to thrive.