3 Most Common Mistakes People Make When Doing Their Books
If you are a small business owner and you’ve been doing your own books, you are not alone. It’s estimated by some that nearly half of all small business owners do their own books.
According to an online article in Entrepreneur magazine, bookkeeping is also probably your least favorite activity as a small business owner. This is likely because bookkeeping doesn’t come naturally or automatically to anyone. Bookkeeping is an activity that requires specialised training and knowledge in order to be done in an accurate and competent manner.
Keeping up with your accounts is also a time-consuming, and relatively dry and boring pursuit. If you make costly mistakes, there’s also the potential that you will destroy your ability to remain in business. The following are the top 3 most common errors that small business owners make when they do their own books, as well as some tips for how to avoid them.
- Failing to Reconcile the Books with the Bank Account or Doing the Books Infrequently
Do you have any idea how much cash you have on hand in your bank account, or, have you been paying overdraft fees? If your answer is yes, you’ve likely not been reconciling your books with your bank account, or, you’ve been doing your books too infrequently.
Bouncing checks not only costs you money, it can also cost you your reputation with vendors and your community. You can avoid overdraft charges, spot signs of suspicious activity in your accounts, and get a better handle on your finances by reconciling your books with your bank account statements and doing all of your bookkeeping chores more frequently.
Ideally, you will reconcile statements at least monthly, and record transactions daily.
Doing your books more frequently will also help you to make better strategic business decisions and plans, control your cash flows more easily, as well as cost you less time and money when it comes time to do your taxes.
As you do your books, make certain to take the time to jot down a few details for every transaction, while it’s still fresh in your mind. Doing so will save you an enormous amount of time later, when you do your taxes, as you will need more information about your transactions than what is printed on the receipt.
- Failing to Record All of Your Cash Payments and Failing to Keep Receipts
Failing to record all of your cash payments is an easy mistake for small business owners to make. For example, you might be out on the town enjoying a break from work when you happen to see a product that would make running your business easier. So, you just pull the cash out of your pocket and pay for it and either forget to save the receipt, or lose it.
While it might be a small purchase, these cash payments can add up to large sums over the course of the year and result in lost deductions and greater tax liabilities.
So, always get a receipt for all of your cash purchases, keep an envelope handy to store the receipt until you return to work, and then be certain to record the transaction properly, with details, when you do your books.
- Using an Accounting Program That’s too Difficult or Complex for Your Skill Level
Keeping up with the books is difficult enough, but it becomes an almost impossible task if your accounting software is too difficult to use.
Ideally, you will want to use a bookkeeping program that keeps your personal and business accounts separate and that makes it easy for you to record and save all of your transactions.
Your accounting system should make it simple to track receivables, payables, invoices, inventory, sales, payroll, superannuation and tax liabilities as well as enable you to make forecasts and projections based on your historical records.
If your system doesn’t allow you to do all of these things, or if it requires too many man hours to be able to do these tasks, it’s probably time to consider changing your accounting software.