Top 3 Bookkeeping Mistakes That Cost Your Small Business Money
Everyone makes mistakes. That’s a simple fact of life. In most cases, they’re minor mistakes that cause little disruption to your business (and usually teach everyone a valuable lesson). But there’s one area in particular where mistakes are most unwelcome: bookkeeping. Bookkeeping is vital for tracking your business’ income and expenses, so even a minor mistake can be detrimental to your business’s financial (and possibly legal) health. Tiny oversights can often lead to losses both big and small.
To make sure your business isn’t losing money to frequent financial errors, we’ve put together this list of the top three common bookkeeping mistakes that every business owner should be aware of.
1. Not Backing Up Data
Many businesses have successfully made the transition from using multiple physical ledgers to manually track accounts receivable, payroll, and other financial transactions to streamlining the process with consolidated software solutions. This is cause for celebration! Technology has made it easier and more efficient to manage your finances. However, if your system crashes or is compromised you could lose all of your data – unless it’s backed up. This is a best practice for bookkeeping, but many businesses commonly fail to perform frequent backups. Even cloud-based software isn’t a sure-fire cure for avoiding data loss. Safeguard your records by backing them up on an external hard drive for greater data protection and peace of mind.
2. Overlooking Sales Tax
One of the most common bookkeeping mistakes is also one of the most damaging: overlooking sales tax. Failure to properly report and record sales tax may violate state law and lead to severe penalties, fines, and interest. Even worse, oversights in charging, collecting, and remitting sales tax may also result in personal liability for business owners since they are responsible for these actions. A bookkeeping best practice is to double-check all of your sales tax data to ensure that it is being properly collected and paid to your state tax authority.
3. Not Tracking Receipts
Our final costly mistake is one that most businesses are guilty of; failing to track receipts. Forgetting to record and file receipts for major business expenses like materials purchases and building repairs seems like the most obvious error— it’s not. In reality, it’s the little things that pile up and lead to major problems. Misplacing that receipt from a business lunch or losing a parking garage voucher doesn’t seem like a big deal on the surface but the reality is that the IRS doesn’t agree. It doesn’t matter if your business expense is big or small, if you claim it then you have to confirm it with proof: receipts. Get in the habit of tracking and properly documenting all minor purchase receipts. If you’re prone to misplacing or accidentally throwing them out, use your smartphone to take a snapshot of your minor purchase receipts and upload them to your files. That way you have a backup (and, as we previously mentioned, backups are essential).
It’s easy for small business owners to make mistakes like these since they have so many responsibilities that can easily overwhelm them. Working with an experienced bookkeeper like Paisley Solutions is the best way to avoid common bookkeeping mistakes. Our expert bookkeeping services have helped numerous small and mid-size businesses and nonprofits in PA, MD, and DE avert these costly errors.