Bookkeeping is an essential business function, both financially and legally. It helps keep your financial records straight and ensures you don’t get into any trouble from the state and federal authorities.
However, most small business owners try to manage their books on their own, making mistakes that can have severe consequences for their firms. According to a study, over 82% of small businesses fail due to a lack of cash flow resulting from poor bookkeeping.
Here are six common bookkeeping mistakes business owners should avoid:
Not Doing Reconciliation
Reconciliation is matching your books with bank statements. Most business owners avoid it until the last minute, as it is a tedious and time-consuming task. But not doing so leaves gaps in your financial statements. Well-managed businesses carry out reconciliation every week. Lack of reconciliation makes you more susceptible to fraud and other illegal activities.
Mixing Personal and Business Expenses
You may have invested your own money in the business, but a company is considered a separate entity for legal purposes. Mixing personal expenses with business can lead to taxation problems. Keep them separate, so you always have a clear picture of your financial statements.
Poor Invoice Management
Invoices are the most crucial source of cash in a business. But most companies don’t manage their invoices properly, which may lead to business failure due to insufficient cash flow. About 41% of business owners accept that invoice collection is a significant issue for them. American business owners lose about $5000 on average every year on unpaid invoices.
Assigning every transaction, expense, and income to the correct category helps create an accurate picture of your finances. Failing to do so can lead you astray towards wrong deductions and trend analysis, which will most likely result in significant losses in the long haul.
Lack of Proper Records
You must have a robust system in place to maintain a record of all business transactions. If you fail to prove every transaction, you can run into serious trouble during an IRS tax audit. Since maintaining hard copies of everything can be cumbersome, opting for an electronic record management system is a great alternative. Just make sure that your data storage practices are consistent and secure.
Relying on Old-School Methods
Many business owners still rely on old-school methods of bookkeeping. They miss out on an opportunity because innovative softwares can help you save time, minimize errors, make your bookkeeping more robust, and add efficiency to your cash flow management processes.
About Florida Global Inc
If you are looking for an accounting and consulting company to help with your business finances in the Miami region, Florida Global Inc should be your one-stop destination. We offer tax filing, immigration, real estate services, bookkeeping services, and other financial management services to our clients. You can reach out to us at (786) 456-5140 or email [email protected] for a free consultation. You can also fill out our online contact form to know more about our services.