Small businesses are up against a lot. They have to face fierce competition, an uncertain economy, unexpected expenses, and other challenges. If you own a small business, the last thing you want to do is add to the obstacles in front of you by sabotaging yourself with poor bookkeeping practices. What are some common mistakes that small businesses make, and how can you avoid them?
Not Saving Receipts for Small Amounts
When it comes time to take care of taxes, you want every advantage you can get. One advantage that many businesses do not use is the possibility of saving receipts for purchases less than $75. The IRS doesn’t require that you save those receipts, but the documentation they provide can give you valuable backup for the deductions you claim.
Create a folder specifically for such purchases. You can also scan your receipts into a file on your computer so you still have a record of them even if something happens to the hard copies.
Improperly Classifying Employees
Independent contractors, freelancers, consultants, and your regular employees aren’t all the same when it comes to figuring out your business’s finances. Assign the proper classification for your employees; this will change how you handle your taxes.
Communication Errors
Do you make sure your accountant stays up-to-date on everything? Failing to hand over receipts, or not reporting when you reward an employee with a bonus can create discrepancies in the numbers. Little mistakes like that mean that your accountant may have to waste time tracking down the facts.
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Even if you take care of the books yourself, you should still stay on top of communication by reminding your employees to be diligent about their record keeping.
Skipping an Accounting System
Your business may be small— so small, in fact, that you decide to save money by not using software that is specifically designed for accounting. Even if you use spreadsheets and a well-organized file system to keep track of where your money goes, you are missing out. As Doug Boswell, an accounting expert, points out, “…before having your taxes done, the tax preparer needs to cobble together some sort of makeshift system that will allow your tax return to be prepared, but it almost surely won’t capture all your deductions.”
Review your options for accounting software. Something affordable, like Sage Software, Bookkeeper, or Business2Go, will take care of all your needs without putting a financial burden on you. The software keeps track of invoicing, allows you to link your bank account and lets you view your finances at a glance. It’s a quick, simple and effective way to keep an eye on your finances throughout the year.
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