Six Common Bookkeeping Mistakes Made By Small Businesses
The benefits of bookkeeping go beyond just the results. For example, the turnover of firm X was $10000 in FY2018 and only $8000 in FY2019, despite an increase in sales. In such a scenario, if firm X has maintained proper bookkeeping, then the accountant can simply compare the two balance sheets and pinpoint the problem areas.
This is one of the many examples that prove that the collection of data through accurate bookkeeping makes planning and strategizing easier. Similarly, bookkeeping also comes in handy while taking decisions regarding investments and expansion and while calculating taxes.
Unfortunately, small businesses often consider hiring a bookkeeper as unnecessary expenditure and end up handling the accounts themselves, which could lead to errors. These errors can not only invite the ire of the CRA but also, over time, run a company into the ground.
To help prevent situations like these, Brunning & Company, Chartered Professional Accountant has compiled a list of the six most common bookkeeping mistakes made by small businesses, and how you should avoid them.
1. Combining business and personal finances.
One of the golden rules of small business finance is never to combine business finances with personal ones. It’s imperative that you open a business checking account before you even open doors to the public. This ensures that the funds taken in by the business are used expressly for business purposes.
2. Losing track of petty cash.
Many businesses have a “petty cash” drawer, which is used for small purchases such as office supplies, break room supplies and other incidentals. If you make the mistake of not keeping track of this money, you may end up spending much more than anticipated on these smaller purchases. Inclusion of these miscellaneous expenses in the cash flow is essential to ascertain the performance of a business, accurately.
3. Failure to reconcile bank accounts.
Don’t panic and procrastinate when it comes to reconciling your bank accounts each month. Chances are, once you’ve done it a couple of times, it will quickly become second nature. Problems arise when the task is ignored for several months in a row because then it becomes harder to identify the errors for rectification.
4. Not saving every receipt.
Some business owners make the mistake of not keeping receipts and relying on bank or credit card statements. But, failure to keep track of every purchase can lead to overspending without you even realizing it. Also, if the CRA were to ever question an expense and you don’t have a copy of the receipt, they could deny it.
5. Going completely paperless.
With digitalization taking over the world, it’s easier to go paperless than ever before. However, without a physical paper trail, you need to be extra cautious and ensure that your records are backed up. Why? Well, if everything is done by computer and you don’t back-up your files, there’s always the possibility that you might lose everything, in case your hard drive crashes. Remember, when it comes to keeping track of small business finances, the simplest way isn’t always the best way.
6. DIY Bookkeeping.
To save money, many small business owners attempt DIY bookkeeping. We would suggest that if your budget doesn’t allow you to hire someone, even part-time, consider hiring someone on an ‘as needed’ basis. The money you spend usually comes back to you several times over, considering the possible mistakes a bookkeeper will undoubtedly avoid.
If you’re a female entrepreneur in Canada and are looking for accounting, tax and bookkeeping services, then Brunning & Company, Chartered Professional Accountant, is happy to help. Our services include financial statement compilations, corporate taxes, personal taxes, bookkeeping, sales tax, payroll, and profit first. Our process has four stages, namely, connect, evaluate, setup & execute and monitor and we have one shared goal, to design business accounting solutions for better, streamlined, more informed business decisions. We serve female entrepreneurs in Lethbridge, Coaldale, Fort Macleod, Calgary, Edmonton, Red Deer, Medicine Hat, Alberta and across Canada.