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Run A Small Business? Avoid These 4 Bookkeeping Mistakes That Cut Into Profits

October 03, 20233 min read

While bookkeeping may seem like a tedious and mundane task, maintaining a clean set of books plays a critical role in keeping a business afloat. Managing a successful business requires sound bookkeeping. By collecting, recording, and organizing financial information, an organization creates an accurate picture of its fiscal health. Accurate financial data gives small businesses the necessary information to make key investment, operating, and financing decisions. (Small Business Bookkeeping 2023 Guide) Unfortunately, many small businesses commit bookkeeping mistakes which can escalate into major errors and negatively impact the company. To successfully manage a small business, it’s important to avoid these common bookkeeping mistakes.

Bookkeeping Mistake No. 1: A Lack of Communication

One of the biggest detriments to any relationship is poor communication. Small businesses should strive to communicate well with managers, employees, vendors, and contractors. In an environment of open communication, organizations are better prepared to handle any issue that arises. The most delicate issues that small businesses face relate to company finances. That’s why it’s important for business owners and managers to feel comfortable speaking directly with their bookkeeper to resolve issues. Good communication contributes to accurate, up-to-date financial statements.

Bookkeeping Mistake No. 2: Misclassification of Employees/Contractors

A small business requires contributions from a number of different individuals. Typically, a small business employs both employees and independent contractors. Bookkeepers are responsible for classifying employees and contractors properly. A mistake in classifying employees and contractors not only messes with recordkeeping. Additionally, a mistake may result in misfiled taxes and overpayments to the Internal Revenue Service. To avoid these issues, bookkeepers must carefully clarify the employment status of people working for the organization. When organizations classify workers correctly, they abide by tax laws and potentially, save themselves some money in taxes.

Bookkeeping Mistake No. 3: Improper Petty Cash Management

Petty cash is handy to have on hand for regular and unexpected expenses. But problems arise when small businesses aren’t able to consistently track petty cash spending. Therefore, it’s important to establish a system to track petty cash. First, get a box or assign a drawer for petty cash. Next, record every amount of money added to or taken from the petty cash fund and why the money was collected or spent. Lastly, keep receipts as a back-up. Having cash on hand may be handy, but it also may present a temptation for thieves and less-than-honest employees. Appropriate petty cash management protects a company’s assets and contributes to its long-term sustainability.

Bookkeeping Mistake No. 4: Careless Recordkeeping

Poor recordkeeping not only results in inaccurate financial statements, it also may result in penalties for underpaying taxes. By saving receipts and carefully tracking business transactions, an organization maintains accurate books and is prepared for tax filing and a potential audit. Good recordkeeping helps organizations track payables and receivables, thereby reducing penalties for late payments and maintaining a healthy cash flow as money is collected on time. When recordkeeping is lax, minor bookkeeping errors tend to snowball into major headaches.

Accurate Books Contribute to Small Business Success

As business owners ourselves, Prosperity Bookkeeping understands the demands of maintaining accurate, reliable financial records. Bookkeeping requires specific actions daily, weekly, quarterly, and annually. Sometimes, the demands of bookkeeping seem overwhelming, and bookkeeping becomes a chore. Are Bookkeeping Services Right for Me? Common bookkeeping mistakes are more likely to occur when bookkeepers aren’t properly trained, confident in their work, and passionate about accounting. Inaccurate books can harm a small business and hamper the owner’s ability to make key decisions. Rest assured, Prosperity Bookkeeping offers professional bookkeeping services that contribute to the success of small businesses in Green Bay and Northeast Wisconsin. Contact us today, and tell us your bookkeeping story.

About the Author: Once a mild-mannered reporter and editor, Joan Koehne took on the persona of her alter ego, Wonder Writer, to launch Writer to the Rescue, the content writing division of Packerland Websites. Wonder Writer is “saving the world one word at a time” with power-packed content marketing for digital and traditional media outlets.

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