Running your own business is hugely fulfilling… often, it gets quite demanding. 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 be devoted to your specialization to something that you genuinely love doing. However, there's a critical part of maintaining a business that most business owners dislike: bookkeeping.
If you are not a professional bookkeeper, the chances are that you find bookkeeping complicated and rather dull. However, having good bookkeeping is vital to your business's financial health, and getting it wrong can have devastating outcomes. So, let's look at the five most common bookkeeping errors that can endanger – or even destroy – your business.
1. Failing to Include Bookkeeping in Your Business Plan
As mentioned above, bookkeeping is uncertain to be the area of your business that you're most motivated about. However, failing to account for bookkeeping in your business plan is a huge mistake. Your business plan must lay the foundation for your future achievements, and it's essential to have a firm plan in place before moving ahead.
Be sure to include your financial goals and bookkeeping processes in your business plan. Make sure that you are clear on who oversees 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 complicated enough, so don't make it worse by failing to organize your invoices and receipts properly. It's worth taking time to set up a transparent organizational system to follow so that you don't find yourself buried under a mountain of messy documents later. Cloud-based bookkeeping software can be beneficial for this, as you can upload pictures of your receipts from your smartphone, and the program will automatically organize 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 sure-fire way to muddle your records and enter mistakes on your tax return. So, it's essential 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 challenging – not to mention time-consuming – to remember which purchases were business expenses and which were personal. This may lead you to miss 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, resulting in an incorrect tax bill and even fines. Furthermore, some business owners think of petty cash as free money or their personal wallet. While petty cash is undoubtedly 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 essential to correctly classify your employees and keep track of their employment status to avoid confusion regarding filing your tax return. There are three main types of employees that most businesses have on their payroll:
You worked hard to launch your business, so don't jeopardize your company's
financial health by making the above bookkeeping mistakes. However, bookkeeping can undoubtedly 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. Contact Finance Advisor Auckland
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