Not everyone is passionate about bookkeeping like the professionals at Prosperity Bookkeeping. For some small business owners, DIY bookkeeping is tedious and mundane. Reconciliation and other accounting tasks fall to the bottom of the To Do list. Their procrastination leads to frustration and stress as they rush through the accounting process.

Falling Behind on Bookkeeping Tasks

Playing catch-up with bookkeeping can result in mistakes that potentially lead to costly tax penalties or bank overdraft fees. Procrastination is one of the most common financial mistakes of small businesses. A professional bookkeeper keeps financial accounts up-to-date, accurate, and secure. They’re conscientious, so organizations have timely statements showing their current finances. Competent bookkeeping contributes to successful decision making, budgeting, and financial forecasting.

Here are some of the other common financial pitfalls that hinder the growth and success of a small business.

Commingling Business and Personal Money

By mixing personal and business funds, business owners fail to clearly separate their personal bank accounts and assets from their business accounts and assets. Essentially, the two are under the same entity. Therefore, owners put their personal assets at risk because they lose the legal liability that comes with a corporate structure. When funds are commingled, company owners may become personally liable for business debts and lawsuits. That’s not a financially safe position for any entrepreneur. To deter the commingling of funds, professional bookkeepers can recommend bookkeeping tools and techniques that maintain the integrity of separate financial accounts.

Making Errors in Employee Payroll & Classification

Payroll is a complex and time-consuming task for small businesses. Employers need to pay their employees on time, administer employee benefits, and calculate wages and payroll taxes correctly. Navigating the federal, state, and local payroll regulations requires Human Resources knowledge and experience. Two common payroll mistakes are the misclassification of employees and contractors and the misclassification of exempt and nonexempt employees. These mistakes can result in misfiled tax forms and underpayment or overpayment to the Internal Revenue Service. Additionally, employers may owe back wages and IRS penalties. To avoid misclassification mistakes, professional bookkeepers clearly define the employment status of people who contribute to a small business. With accurate classification, organizations avoid tax penalties and comply with tax laws.

Improperly Managing Petty Cash

Having cash on hand is handy, but petty cash can present a temptation for thievery and the risk of lax bookkeeping. Petty cash accountability is the key to limiting the potential for theft, fraud, or abuse and keeping a clean set of books. Professional bookkeepers can help businesses create a system to collect, store, spend, and track petty cash. The system should include a custodian who is in charge of approving spending and managing the cash. Additionally, every purchase made with petty cash should have an accompanying receipt. With the proper petty cash management, organizations develop safeguards against stealing and accurate accounting for cash used for small purchases.

Trying To Do Bookkeeping Yourself

Many entrepreneurs and small business owners dread doing their bookkeeping, yet they insist on doing it themselves. Professional bookkeepers have the expertise to work quickly and efficiently. They have the skill to detect subtle errors that might otherwise go unnoticed. Plus, they’re aware of tax law, including changes that can affect an organization’s financial practices. A second set of eyes on financial records can provide beneficial insights, advice, and financial forecasting. For more great advice, read the Top 17 Bookkeeping & Accounting Tips for Small Business Owners.

To avoid these and other common financial pitfalls, work with a professional like Prosperity Bookkeeping. We provide a proven process that will have you spending less than one hour per month on bookkeeping-related tasks.Contact us today, and tell us your bookkeeping story.