But keeping the books for your small business doesn’t have to be stressful. We want to help you simplify your life, save money and reduce stress by learning how to avoid these five basic bookkeeping mistakes.
1. Mixing Money. You might think it’s not a problem, but the IRS disagrees. Co-mingling your personal and business funds together is simply bad business and as a LLC or Corporation it could potentially cause a breach in the “corporate veil.” Not only is it a risk to your asset separation but also you may have to pay an IRS penalty if get caught. No matter what, keep your business and personal account spending separate. Take the time to speak with a small business accountant to help determine the best way for you to transfer money from the business to you personally or vice versa.
2. Paying in Cash. In business, cash rarely gets documented correctly because cash transactions are hard to track and record. Typically this is why “cash” businesses have a higher audit rate with the IRS. Use credit or debit cards to pay for your business transactions. They leave an electronic paper trail. Remember, cash has no memory, and small business accounting demands a long one. For example, some financial records must be retained for up to seven years. If you must use in cash, use it sparingly. Create a small petty cash account, record each transaction and retain your receipts.
3. Record your expenses accurately. Most business owners believe they track and write off every expense, but they often miss a few. Recording losses goes beyond reporting loss income due to uncollected invoices. A few examples of losses that often go unrecorded include:
4. Improperly Depositing/Investing Cash in Your Small Business. The proper way to receive money from your business depends on its legal structure. For example, sole proprietors should not “lend money” to their businesses, but instead make capital contributions. Shareholders can make loans to corporations or (paid-in) capital contributions. If you are not sure what’s right for your business, talk to your accountant to determine the best accounting method for your business.
5. Waiting until Year-End to Balance Your Books. This is a huge mistake! To run a successful small business, you need to have a complete and accurate representation of your company’s finances. Reconcile your transactions, regularly. Below are a few tips to help you stay on top of financial tasks:
Take advantage of these quick tips by getting organized, and taking a good, hard look at your bookkeeping system so you can avoid these five small-business bookkeeping missteps to minimize your stress and simplify your business.
How do you typically handle your bookkeeping? What is the hardest part of small business accounting for you?
At Tax Alli, we pair you with real life accountants and use cloud software to make small business accounting awesome. Do what you love; we’ll handle the rest.
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