Running a business is hugely fulfilling… and often, very stressful. It takes a lot of hard work to get your business off the ground but it’s worth it to be your own boss and dedicate your professional life to something that you’re truly passionate about. However, there’s one part of running a business that the majority of entrepreneurs dislike: bookkeeping.
Unless you’re a professional bookkeeper, the chances are that you find bookkeeping overly complex and rather tedious. However, good bookkeeping is vital to the financial health of your business and getting it wrong can have disastrous consequences. Let’s take a look at the five most common bookkeeping mistakes that can threaten – or even break – your business.
1. Failing to Include Bookkeeping in Your Business Plan
As we said above, bookkeeping is unlikely to be the area of your business that you’re most excited about. However, failing to account for bookkeeping in your business plan is a big mistake. Your business plan lays the foundation for your future success and it’s important to have a solid plan in place before steamrolling ahead.
Be sure to include your financial goals and bookkeeping processes in your business plan. Make sure that you are clear on who is in charge of each financial deliverable and create a bookkeeping schedule. Many entrepreneurs get swept up in the excitement of their new venture and put bookkeeping off until later, which is a big mistake. Staying on top of bookkeeping is essential to ensure that your company stays in good financial health, so make a schedule that you can stick to.
2. Poor Organisation
Bookkeeping is difficult enough, so don’t make it worse by failing to properly organise your invoices and receipts. It’s worth taking time to set up a clear organisational system to follow so that you don’t find yourself buried under a mountain of muddled documents later on. Cloud-based bookkeeping software can be very helpful for this, as you can upload pictures of your receipts from your smartphone and the program will automatically organise them for you. This also ensures that you don’t lose any receipts and end up paying more tax than necessary.
3. Mixing Business and Personal Bank Accounts
Doing business with your personal bank account is a surefire way to muddle your records and enter mistakes on your tax return. It’s important to create a separate business bank account as soon as possible to ensure that your business and personal transactions stay separate. Otherwise, it can be very difficult – not to mention time-consuming – to remember which purchases were business expenses and which were personal. This may lead you to missing out on tax deductions or mistakenly entering personal items on your tax return, which could lead to penalties.
4. Neglecting and Misusing Petty Cash
Many business owners neglect to file petty cash, which can result in an incorrect tax bill, and even fines. Furthermore, some business owners think of petty cash as free money, or their personal wallet. Whilst petty cash is certainly convenient, remember that the money still belongs to the business and that these transactions need to be tracked.
5. Failing to Classify Employees
It’s important to properly classify your employees and keep track of their employment status to avoid confusion when it comes to filing your tax return. There are three main types of employees that most businesses have on their payroll:
- Independent contractors
You worked hard to launch your business, so don’t jeopardise the financial health of your company by making the above bookkeeping mistakes. However, bookkeeping can certainly be a demanding job and it only grows more so as your business expands. Therefore, if you’re struggling to stay on top of bookkeeping, it may also be time to consider hiring the services of a professional bookkeeper to make sure that you stay on track for financial success.