Accurate bookkeeping is a necessary practice for small businesses and large ones alike. Knowing where your money is and what you’re spending it on could mean the difference between success and failure. Here’s a look at some common bookkeeping mistakes and how to avoid or fix them:
1. Improper Categorization
One of the most common bookkeeping mistakes is categorizing expenses improperly. If you or your hired bookkeeper doesn’t pay careful attention, expenses can be improperly categorized and result in a mess with the IRS. Correctly filing your profits and expenses, and knowing what expenses are tax deductible, helps prevent some hassle at tax time and can result in huge tax savings.
2. No Bank Reconciliation
When personal and business accounts are mixed, it becomes extremely difficult to accurately track, categorize, and manage profits and expenses. For effective bookkeeping, it is crucial that bank accounts are reconciled regularly and often. In case of an audit, you need to provide accurate documentation regarding your income and business-related expenses. If bank accounts are not properly reconciled, providing this documentation becomes a hassle that can cause loss of money.
3. No Data Backups
In our increasingly digital world, much bookkeeping is done on computers. While this makes keeping track of profits and expenses more convenient and streamlined, it is still possible for this data to be lost. To avoid hassle and lost profits, make sure you keep regularly updated backups of all your books. If a file is lost or corrupted or a computer malfunctions, you’ll still have access to all your data.
4. Not Managing Reimbursements
Many business owners end up paying for business expenses out-of-pocket. When this happens, it is necessary that this reimbursable expenses are tracked and managed. Without management, reimbursements often get overlooked and lost over time, resulting in a loss of profits and tax deductions. Always manage and track your reimbursements in your books to keep everything balanced.
5. Lack of Communication
In many businesses, the accounting department is often viewed as separate from the rest of this business. When this occurs, it is difficult for bookkeepers to keep accurate records of expenses and profits. Good communication between your accountants, bookkeepers, and other employees keeps the books well-managed and allows the bookkeepers to provide accurate statements about the business’ finances.
One of the best ways to ensure your bookkeeping is done accurately and effectively is to work with us. We provide tax preparation, payroll processing, bookkeeping, and financial advice services to our clients to keep their businesses running smoothly, efficiently, and profitably. If you’re ready to let experts keep your books and avoid the hassle of doing it yourself, contact us today to see what we can do for you!