For any small business, financial records and books will serve as the lifeline. A problem or error within the financial books can cause issue when it comes to planning, assessing profits and determining tax liability. Here are just some of the costly bookkeeping mistakes some small businesses make.
Failing to Reconcile
Monthly bank statements and bookkeeping records should be identical. Failing to reconcile your books with bank statements at the end of each month can cause inconsistencies that make it harder to accurately monitor expenses or make projections. Reconciling your books also helps highlight any errors, such as a missed payment. Overall, reconciling keeps everything accurate.
Failing to Categorize Correctly
All expenses should be placed in a category that best represents what they are, such as inventory, facility maintenance or employee training. Mistakes related to categorizing these expenses is a common issue. A miscategorized expense doesn't necessarily effect the bottom line, but it can cause issues with budget planning. For instance, if some inventory expenses are being categorized incorrectly, when it's time to create a budget forecast for future inventory expenses based on past expenses, the lack of information will lead to inconsistencies.
Failing to Backup Data
Small businesses rely on computers to meet many of their needs, including their bookkeeping efforts. Don't solely rely on a computer for these efforts. It's important to have backup in the form of paper documentation. Should a business be audited by the Canada Revenue Agency and a technical issue prevent them from accessing their electronic information, penalties could ensue for their inability to provide accurate documentation.
Failing to Have Proof
It doesn't matter how proficient you are at keeping the information in your records accurate; if you don't have proof in the form of receipts, your books aren't exactly accurate. As a small business owner, you should have a receipt or invoice to back up every entry you place within your records. This isn't just important for tax purposes, but also for tracking expenses. Don't make the mistake of only keeping documentation for large expenses. It's a good idea to keep records of everything.
Avoiding a time-consuming and costly mistake within the financial records of your small business begins with hiring a professional, like Tony Tiani & Co Inc accountants. Hiring an accountant can help bring a level of accuracy and consistency to your financial books and records. This accuracy can help your business avoid the problems that come along with these common errors.