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Someone once said, “You must learn from the mistakes of others. You will never live long enough to make them all yourself.” Perhaps truer words have never been spoken, especially when it comes to bookkeeping. When dollars and cents are involved (not to mention the tax), it’s always best to learn from someone else’s mistakes.
Hiring a certified bookkeeper can help your business avoid some of the most common errors when it comes to managing your books and finances. Here, we outline the top seven bookkeeping mistakes businesses make in regards to bookkeeping and why to avoid them:
1. Blending business and personal expenses.
When businesses are just getting off the ground, it may seem pointless to go through the hassle and expense of opening a separate business bank account or getting a business credit card. However, business purchases made through a personal account makes for a mess you don’t want to wade through.
Not only will you have receipts that you don’t remember, but you’ll also have bank statements that include groceries as well as paper for the office printer. Your expenses won’t line up, and you’ll end up spending a lot of time sorting through receipts trying to make sense of them. Plus, you might also misplace or misdirect receipts that could be a write-off for the business.
2. Not keeping receipts, or dismissing small expenses.
Have you heard that saying, “Take care of the pennies and the dollars will take care of themselves”? It can be tempting sometimes to toss out bills for small expenses, but it all adds up fast. You always want to keep documentary evidence of any costs you may have incurred. It’s also not wise to hope your bank statement will suffice as sometimes they could get fairly confusing, especially when there are several transactions.
3. Not having a qualified bookkeeper
As your business grows, so will your bookkeeping needs. It will become increasingly challenging to stay on top of your finances. The best option is to hire someone with a certificate in bookkeeping as things grow beyond your abilities.
Your bookkeeper is a key member of your business team. Those who have taken bookkeeping courses are a lot more capable than those who don’t have relevant qualifications.
4. Not completing reconciliations.
The individual entries in your books (whether physical books or online accounting systems) need to be reconciled with the bank statements each month. It’s a process of matching, tallying and comparing balances to ensure there are no differences between what you think happened in your account and what actually happened.
Many business owners can do reconciliations themselves, but at times due to other things taking priority, they might postpone this. If unattended, it can become an issue down the line. Since it needs to be done regularly (ideally monthly) it’s best to leave it to a professional bookkeeper.
5. Preparing and filing tax returns.
Do you know all the processes required to file taxes? Do you know how much your business owes the government? Filing your tax returns regularly is important to avoid penalties later. A professional, tax-savvy bookkeeper would ensure you meet your business tax commitments but also do so in a way that is financially beneficial to your business.
6. Putting a round peg into a square hole.
Whether it’s your expenses or employees, many businesses make bookkeeping mistakes of mixing up expenses and people who do business with you. When it comes to expenses, ask your bookkeeper to provide you with a list of appropriate expense categories and stick to them. Too often, businesses end up with too many categories, which don’t necessarily fall under the general bookkeeping guidelines.
Similarly, when you hire a lot of contractors, consultants or freelancers, they may sometimes get categorized as staff. The associated expenses may get filed wrongly, causing problems. It’s essential to be aware of these things.
7. Not having a backup for transaction and expenses.
With accounting programs that allow you to take a picture of your receipt and upload it as well as scanning systems, it would seem all that paper isn’t necessary to hang on to, but hold up! It is. CRA does like to see paperwork and documentation (sometimes up to six to seven years) and isn’t too concerned about how many record boxes you need to keep in storage. Even when all your accounting is done on the computer and backup is electronically stored, a paper trail is still required.
If your business is making any of these bookkeeping mistakes, you may want to consider hiring a professional bookkeeper to help you get things back on track. Be sure to find someone who has taken the appropriate bookkeeping course and has a certificate in bookkeeping.