Bookkeeping is crucial for any business. Without your books, there are no numbers to provide a point of reference or complete even basic tasks like submitting a tax return. Unfortunately, there are plenty of bad bookkeeping practices and mistakes that could be hurting your business. So, here we’ll look into the most common mistakes, so you can ensure that you protect your business.
Missing Expenses
The goal of your business tax return is to maximize your expenses and reduce your tax bill. Even missing one expense can have a massive impact, so it is crucial to understand what expenses you may be neglecting to claim. You could be missing out on claiming legitimate expenses, hurting your bottom line.
Missing Filing Deadlines
Running a business can be hectic, but if one thing needs to be a firm date in your calendar, it is deadline day. If you fail to file on time, you will incur penalties and interest that starts to accrue from the day after the deadline. Additionally, missing filing deadlines is a red flag with the IRS that could encourage an audit.
Poor Receipts
It is crucial to have your receipts organized to claim and support all your expenses. Each expense needs to be a reasonable business cost, so keep a note of details to support receipts. For example, if you have a receipt for a meal, note on the back the client details and the reason for the meeting. Should the IRS demand an audit, you’ll be able to prove that the dinner was a genuine business expense. It is also important to retain all your receipts and paperwork. The IRS recommends keeping paperwork for at least three years, but it is worth holding them for seven years, just in case the IRS wants to check into bad debts or under-reporting income.
Not Keeping Personal and Business Accounts Separate
During an audit, it is even more stressful if the boundaries between business and personal accounts are blurred. It is far easier to reconcile and proof your accounts when your business has a separate account.
Payroll Mistakes
Ensuring your employees are paid on time and the proper deductions are taken is crucial for any business. Simple mistakes can not only cost your business money, but you may also lose good employees.
Late Invoicing
If you invoice your clients late, you are setting a tone and standard for your business. Good businesses send invoices routinely and promptly, encouraging your clients to pay quickly. Remember that cash in your account is far better than when it is left on the table. So be sure to establish efficient invoicing practices.
Failing to Regularly Count Inventory
You need to count your inventory regularly, or you could end up losing money. If you don’t track your inventory, you cannot track the cost of your goods sold. Under or overstocking can play a massive role in the profitability of your business.
Failing to Know Your Limits
Finally, if you don’t have time to manage your bookkeeping properly, you need to be realistic and outsource. Rather than detracting from your core business by trying to learn new guidelines, using a professional bookkeeper will reduce errors and help your business grow.