Small businesses are extremely important. From providing employment to boosting the local economy, they create tremendous value. In order for businesses to reach optimal growth, they must track their financial transactions carefully. Bookkeeping activity can help businesses in recording their daily financial transactions with supporting documents. Consistent bookkeeping helps in financial tracking and in the preparation of accounting statements. However, most small businesses struggling with bookkeeping due to time and resource constraints. Without proper or professional guidance, many small businesses commit bookkeeping mistakes that turn out to be costly. Next, we’ll identify some of these common mistakes and learn tips to avoid them.
Common Bookkeeping Mistakes:
- Failure to Keep Receipts: Many bookkeepers fail to classify and file relevant receipts associated with transactions. This happens mainly in the case of small value transactions, for example, food receipts. A proper record of them is necessary for proof of expenses. Especially, in the case of an audit, having receipts is crucial. To avoid this, it is advisable to keep a special folder for filing these receipts. Also, make sure to train your bookkeeping staff about the importance of recording every transaction for long-term use.
- Wrong Category Entries: Bookkeeping involves the categorization of every transaction in a suitable account within your general ledger. These accounts are typically numbered. This will be a great help for your accountant in analysis while preparing financial documents. If your organization doesn’t have a proper chart of accounts, it can confuse the bookkeeper. For example, common mistakes include using the wrong expense account. The primary solution to this mistake is to have a solid chart of accounts based on your organization’s business activity prepared for you and train on it. When you come across a transaction that you don’t know how to categorize, put it in a special account for review. “Ask My Accountant” or sometimes this account is referred to as a suspense account. You’ll let the pros tell you where that one goes.
- Lack of Data Backup: Today we live in a digital world. It is always good to digitize your bookkeeping activities using software such as FINSYNC. It’s recommended to make sure to have a backup option in the form of paper printouts or a second cloud storage device where copies can be stored. A lack of such backup might cause you trouble in the case of any technical failure or data loss. For example, the practice of taking daily transaction printouts from your software will be helpful in case your online backup collapses.
- Reconciliation with Bank Statements: Human data entry errors are inevitable during bookkeeping. Errors such as entry reversal (credit/debit), wrong transaction value, typos, etc. are very common. The only way to rectify this is by cross-checking entries with your bank accounts. For example, an income of $300.00 wrongly entered as $30000 can adversely affect your entire understanding of your business’s health. Make it a habit to reconcile your accounts as soon as new bank statements become available.
Bookkeeping activity is crucial for navigating your business successfully. Give it the priority it deserves, and don’t forget to provide adequate training for your personnel.