Did you know that there are 33.2 million small businesses in the United States? Running anything that big requires a lot of work and preparation.
Before you do anything else, make sure that you set up your business’s finances. You need to strive for excellence in bookkeeping as you grow your business. Otherwise, you risk it collapsing.
Fortunately, you can find everything you need here. In this article, you’ll learn about small business bookkeeping mistakes and how to avoid them. Continue reading, and you’ll find organizing your business finances easy.
1. Failing to Keep Separate Bank Accounts
Failing to keep separate bank accounts is one of the most common bookkeeping mistakes and one of the most costly. This can lead to confusion, overspending, and tax accounting problems.
Small businesses should have a business checking account and a personal account. Keeping the accounts separate helps simplify accounting and bookkeeping. This also makes it easy to determine the business income and expenses separate from the personal ones.
2. Neglecting Depreciation Schedules
A depreciation schedule is used to show the loss in value of an asset over time. This can be due to wear and tear, obsolescence, or other factors. Neglecting to track and document depreciation can result in the business paying more in taxes than necessary.
To avoid this mistake, small business owners should consult with accounting services to come up with an accurate depreciation schedule and track it regularly. This will ensure businesses are following accounting regulations and taking advantage of all potential tax savings.
3. Not Taking Advantage of Tax Benefit Strategies
Small business owners need to be aware of all the different tax strategies that can help their businesses save money in the long run. One of the more important strategies to consider is taking advantage of deferred taxation.
Deferred taxation allows owners to defer taxes on earned income and reinvest it into their business. This helps them generate more revenue while still paying fewer taxes than they would initially have had to pay. Making sure to familiarize yourself with the different tax strategies can help small businesses save considerable amounts of money on their taxes.
4. Late Payments on Invoices
Late payments can have serious consequences for the business’s cash flow, as well as its credit standing. To prevent late payments, it is important for bookkeepers to ensure that all invoices are sent out promptly and in good order.
Following up on payments shortly after an invoice is sent out is also essential. This can alert the customer to issues surrounding the payment. This also helps to remedy any problems before they become too problematic.
5. Incorrect Classifications of Different Business Expenses
These mistakes occur when expenses are incorrectly categorized as capital or operating expenses. To avoid this mistake, it is important to review the classifications of each individual expense. This can be done through the use of financial documents for bookkeeping.
Additionally, small business owners should make use of account codes, which act as a roadmap for categorizing expenses. Account codes can also make it easier to track changes in these classifications over time.
Avoiding the Small Business Bookkeeping Mistakes
Small business bookkeeping mistakes can be costly for businesses, especially with scarce resources available. Being aware of common mistakes and knowing how to avoid them can help small businesses stay on top of their finances and set themselves up for long-term success.
Take advantage of the many services that can help small business owners improve their bookkeeping practices!
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