Gravest bookkeeping mistakes made by small businesses is a must read for every serious success minded entrepreneur. These are mistakes that are silently killing their efforts in business. From research and observation, I have discovered that both a one man business and the one employing 100 employees need bookkeeping for maximizing their business endeavors. Though, bookkeeping is not typically among the most prestigious jobs around, it is the heart of the success of any successful business organization. However, it is sad to note that most of these businesses make serious bookkeeping mistakes that are sapping of huge fortune unknowingly to them.
In my resolve to always bring to you quality information that will enable you to make the most of your business endeavors, I am going to share with you ten gravest common mistakes made by small businesses. I want you to take a good look at them and avoid them like a plaque. They are as follows:
1. Lack of communication: Most businesses always make the mistake of paying someone a bonus and not reporting it or buying supplies and not providing the bookkeeper with the information or receipts. With time this lack of information will begin to tell on the success of the business. Lack of information brings great frustration to business documentation. You may have well experienced book keepers, but if they are not are not filled in and kept up to date on all financial transactions, they will not be able to produce effective and efficient bookkeeping.
2. Doing it yourself: Trying to do everything by your self is detrimental to the success of your business. It is very funny to note that no matter how much they hate it, many small business owners insist upon handling the books themselves. Some of them take it to the extreme by hiring a competent book keeper, but never allow them to handle the bookkeeping task of their business. Friend never make such mistake, it will cost much. Employ a competent bookkeeper and allow them the freedom to handle all your record keeping for you. This will be extremely beneficial in that they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions where appropriate. Use that spare time they have relieved you to concentrate on other relevant areas of your business where you lack capable hands.
3. Improper classification of employees: Most business owners engage in the stupid act of the proliferation of independent contractors, consultants, and freelancers in such a way that make it difficult to determine who is on staff list and who is not. These inevitably lead to misfiling when it comes to filing taxes since there are different rules and regulations for employees and non-employees. If your business must succeed you have to get rid of all these confusion. Get your business properly organized so that your bookkeepers can carry out effective and efficient bookkeeping exercise in your business organization.
4. Wrong categorization or over categorization. Wrong categorization is a fundamental gravest mistakes made by small businesses. Everything just lumps up together in a bundle of big confusion. No order, no pattern and no standard. There are fairly standard categories for expenses. Most cases, expenses are entered into the wrong categories or too many categories are created which in turn creates a lot of confusion for the bookkeeper. Wherever, there is no organization, confusion breeds and failure becomes inevitable. To avoid this mess, use general bookkeeping guidelines for standard categorization and create as few new categories as possible. When you try to follow simple accepted accounting principles, you will be able to avoid this confusion and position your business in the path of success.
5. Lack of Backup. Much vital information has been lost because business owners did not see the wisdom in having a separate back up of that information. It is important to realize that we are in the 21st century, and as such we are no longer in the age of paper work. Everything in record keeping is done electronically. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems. Where you do not make duplicate copy available in a form of back up stored separately from your computer hard disk, you will stand the chance of losing your files should your computer experience a technical fault that affects its hard disk drive. Therefore, you can get a back in a flash drive, or better still buy an external hard drive to store all relevant records of your business.
6. Not keeping records of receipts of small amount: Many business owners do not keep records of less than $75 because they feel it will not be required by the IRS. That is a grave mistake killing your business subtlely, and that is why you are not noticing its effect. If you do not stop it now, it will frustrate your business by creating a problem that will cost you more in the future. This information is needed to provide backup documentation for the many deductions you may claim. It is very simple to have a folder for such receipts; they will definitely prove valuable at tax time.
7. Ignoring the tracking of reimbursable expenses: Most times small business owners often pay for expenses out of their pocket or with their own personal credit card. When they do this they often make the mistake of failing to track these expenses. They then fail to submit the expenses to the company for reimbursement. Since this was not submitted to the company for reimbursement, this expense does not go into the company record as expenses. This affects the company because at the time of records evaluation, it will not be available to aid decision making. As little as this error it makes the company come to wrong conclusion in terms of financial evaluation.
8. Inability to reconcile the books of records with the bank statement each month: One of the fundamental aspects of bookkeeping is reconciling the books of records and bank statements every month. As important as this exercise, there many business owners who do not see the need to do it. Those who dare to do it, fail to do it properly. To solve this problem try to hire a good and experienced bookkeeper.
9. Ignoring the deduction of sales tax: A common mistake in retail businesses is failure to deduct the sales tax from the total sales. This gives a false impression of a higher total sales amount and does not lower the amount of taxes due. This is a grave mistake you need to guide agaist.
10. Petty cash nonchalance: Many businesses and offices are nonchalant about using the petty cash fund without keeping accurate records. To avoid the damaging effect of this attitude, a system should be set up whereby a set amount of money is in petty cash and each time money is taken out for any purpose, a petty cash slip is filled out. When the fund is exhausted, the slips will total the original amount and a check can be written to cash to set up the full amount again
Friend, I hope you have learned much from the above gravest bookkeeping mistakes made by small businesses. No matter how we try to justify wrong actions, it will never prove to be true. It is the refusal of men to stop attending the school of foolishness that makes them graduate with a degree in misfortune. Do your best to avoid these bookkeeping mistakes and your business will experience tremendous beneficial changes.
In my resolve to always bring to you quality information that will enable you to make the most of your business endeavors, I am going to share with you ten gravest common mistakes made by small businesses. I want you to take a good look at them and avoid them like a plaque. They are as follows:
1. Lack of communication: Most businesses always make the mistake of paying someone a bonus and not reporting it or buying supplies and not providing the bookkeeper with the information or receipts. With time this lack of information will begin to tell on the success of the business. Lack of information brings great frustration to business documentation. You may have well experienced book keepers, but if they are not are not filled in and kept up to date on all financial transactions, they will not be able to produce effective and efficient bookkeeping.
2. Doing it yourself: Trying to do everything by your self is detrimental to the success of your business. It is very funny to note that no matter how much they hate it, many small business owners insist upon handling the books themselves. Some of them take it to the extreme by hiring a competent book keeper, but never allow them to handle the bookkeeping task of their business. Friend never make such mistake, it will cost much. Employ a competent bookkeeper and allow them the freedom to handle all your record keeping for you. This will be extremely beneficial in that they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions where appropriate. Use that spare time they have relieved you to concentrate on other relevant areas of your business where you lack capable hands.
3. Improper classification of employees: Most business owners engage in the stupid act of the proliferation of independent contractors, consultants, and freelancers in such a way that make it difficult to determine who is on staff list and who is not. These inevitably lead to misfiling when it comes to filing taxes since there are different rules and regulations for employees and non-employees. If your business must succeed you have to get rid of all these confusion. Get your business properly organized so that your bookkeepers can carry out effective and efficient bookkeeping exercise in your business organization.
4. Wrong categorization or over categorization. Wrong categorization is a fundamental gravest mistakes made by small businesses. Everything just lumps up together in a bundle of big confusion. No order, no pattern and no standard. There are fairly standard categories for expenses. Most cases, expenses are entered into the wrong categories or too many categories are created which in turn creates a lot of confusion for the bookkeeper. Wherever, there is no organization, confusion breeds and failure becomes inevitable. To avoid this mess, use general bookkeeping guidelines for standard categorization and create as few new categories as possible. When you try to follow simple accepted accounting principles, you will be able to avoid this confusion and position your business in the path of success.
5. Lack of Backup. Much vital information has been lost because business owners did not see the wisdom in having a separate back up of that information. It is important to realize that we are in the 21st century, and as such we are no longer in the age of paper work. Everything in record keeping is done electronically. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems. Where you do not make duplicate copy available in a form of back up stored separately from your computer hard disk, you will stand the chance of losing your files should your computer experience a technical fault that affects its hard disk drive. Therefore, you can get a back in a flash drive, or better still buy an external hard drive to store all relevant records of your business.
6. Not keeping records of receipts of small amount: Many business owners do not keep records of less than $75 because they feel it will not be required by the IRS. That is a grave mistake killing your business subtlely, and that is why you are not noticing its effect. If you do not stop it now, it will frustrate your business by creating a problem that will cost you more in the future. This information is needed to provide backup documentation for the many deductions you may claim. It is very simple to have a folder for such receipts; they will definitely prove valuable at tax time.
7. Ignoring the tracking of reimbursable expenses: Most times small business owners often pay for expenses out of their pocket or with their own personal credit card. When they do this they often make the mistake of failing to track these expenses. They then fail to submit the expenses to the company for reimbursement. Since this was not submitted to the company for reimbursement, this expense does not go into the company record as expenses. This affects the company because at the time of records evaluation, it will not be available to aid decision making. As little as this error it makes the company come to wrong conclusion in terms of financial evaluation.
8. Inability to reconcile the books of records with the bank statement each month: One of the fundamental aspects of bookkeeping is reconciling the books of records and bank statements every month. As important as this exercise, there many business owners who do not see the need to do it. Those who dare to do it, fail to do it properly. To solve this problem try to hire a good and experienced bookkeeper.
9. Ignoring the deduction of sales tax: A common mistake in retail businesses is failure to deduct the sales tax from the total sales. This gives a false impression of a higher total sales amount and does not lower the amount of taxes due. This is a grave mistake you need to guide agaist.
10. Petty cash nonchalance: Many businesses and offices are nonchalant about using the petty cash fund without keeping accurate records. To avoid the damaging effect of this attitude, a system should be set up whereby a set amount of money is in petty cash and each time money is taken out for any purpose, a petty cash slip is filled out. When the fund is exhausted, the slips will total the original amount and a check can be written to cash to set up the full amount again
Friend, I hope you have learned much from the above gravest bookkeeping mistakes made by small businesses. No matter how we try to justify wrong actions, it will never prove to be true. It is the refusal of men to stop attending the school of foolishness that makes them graduate with a degree in misfortune. Do your best to avoid these bookkeeping mistakes and your business will experience tremendous beneficial changes.
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