Top 10 Bookkeeping Mistakes Business Owners Make
If you want to start your business or already own one, then this article is for you!
Every entrepreneur dreams of reaching new heights of success. You could be a sole proprietor or have a partnership, but you are responsible for your business activities. You will be affected by the level of profits or losses your business generates.
Having a faulty business model is often considered as the biggest mistake any entrepreneur could make, but we usually undermine the importance of financial management in business development.
Efficient financial management is just as important as having the right marketing strategy at the right time for the right target audience.
In this article, we will share the top 10 mistakes business owners make while bookkeeping their business transactions.
Leaving Bookkeeping till a Tax Deadline Comes Up
Mixing Personal and Business Expenses
Not Keeping Receipts
Not Reading Financial Statements Regularly
Not including GST or HST in Invoices or Sales Receipts
Counting Owner Drawings as Expenses
Not Backing Up Files
DIY Bookkeeping Without an Accounting Background or Familiarity With Tax Laws
Not Reconciling Bank Statements With Business Books
Working With an Inexperienced Bookkeeper
1. Leaving Bookkeeping Till a Tax Deadline Comes up
We are all familiar with the negative impact of procrastination on work performance. Entrepreneurs often leave maintaining their books until a tax deadline pops up as it involves recording small but numerous transactions.
Leaving bookkeeping to the last minute can lead to erroneous records giving way to financial loss and higher levels of stress and anxiety.
We suggest that you take your business transactions seriously and note them as you go further. Setting a day or two for just bookkeeping tasks is a great way to track your business success.
However, do this only if you are an expert bookkeeper. Therefore, if it seems like a dreadful activity, get in touch with bookkeeping professional. Have more control over your business and focus only on what you do best!
2. Mixing Personal and Business Expenses
We understand that your business is a big part of your life, but you must separate your personal expenses from your business expenses.
It is beneficial to have a separate bank account for your business and, to ensure tax savings, make sure you keep track of the business payments that are made from your personal account.
Plus, having separate bank accounts for personal and business usage highlights the operating costs providing a clear indication about your business performance.
3. Not Keeping Receipts
Any transaction, small or big, is part of the overall business performance. You cannot claim expenses without proof, so keeping minor expense receipts is also crucial for supervising business costs. It is considered a common practice among top-ranking businesses to keep purchase records for up to 7 years. Moreover, having a digital receipt is even better, so we suggest that you consider it.
4. Not Reading Financial Statements Regularly
Reading financial statements can be a tedious task, and that is why many businesses try to avoid it or do not do it as often as they should. You cannot monitor your business performance and fail to reach their set goals.
Going through your financial statements every month ensures that you know what’s happening in your business and where you stand financially.
After all, you want your business to thrive, right?!
5. Not Including GST or HST in Invoices or Sales Receipts
It is quite common for businesses to not add the required Goods and Services Tax (GST) or Harmonized Sales Tax (HST) in their sales receipts, but please note that this is a crime and must be avoided.
Be sure to include GST and HST in your invoices. In Canada, you must add 5% Goods and Services Tax (GST) on the goods and services you sell and remit these to the Canada Revenue Agency (CRA), but the Provincial Sales Tax (PST) rate varies according to each province and must be remitted to the correct tax agency.
For example, in Ontario both the GST (5%) and PST (8%) are are combined to form the the Harmonized Sales Tax (HST) of 13%. The HST is then remitted to the CRA. In British Columbia (BC), the GST (5%) and PST (7%) are remitted separately. The GST to the CRA and the PST to the BC Ministry of Finance.
6. Counting owner drawings as expenses
As a business owner, it is natural that you treat your business expenses as your own because initially, you would have to pay for them. However, keep an eye on your drawings so that you don’t count them as your business expenses.
Owner drawings are not considered as a business expense and are therefore not recorded in the income statement as it does not affect the company’s net income.
7. Not Backing Up Files
In a world where most work is handled online, it is common to face software failures and application formatting. So keeping a backup for your business data is crucial as it will save you from any unexpected inconvenience in the future.
8. DIY Bookkeeping Without an Accounting Background or Familiarity With Tax Laws
Now, this mistake is the most common because we all have internet access, and there are plenty of tutorials online that can show you how you can manage your expenses yourself. But have you ever thought about the adverse consequences of lack of knowledge and expertise?
Therefore, working with a highly experienced bookkeeper is imperative for any successful business.
9. Not Reconciling Bank Statements With Business Books
Having money on hand at all times is good for the business and knowing about it is imperative. A growing business needs consistent records of cash at hand and proper reconciliation of business books with bank statements as it helps find bank errors and prevent any major issues. However, it can be quite challenging to reconcile bank statements with business books by yourself, so we recommend that you consider assigning this task to experienced accounting professionals.
10. Working With an inexperienced bookkeeper
Can you trust a medical intern with your health? We hope that you don’t!
Likewise, you can’t rely on an inexperienced bookkeeper having little to no knowledge about financial management and accountancy for the financial health of your business. In simple words, your business will suffer.
Work with a bookkeeper who has years of experience in their field, and try to have open communication with them, so they understand your business goals.
The Takeaway
We’ve shared with you the top bookkeeping mistakes businesses make and how you can avoid them. Make sure you determine your business and ensure that you don’t commit any of these. If you do, please try to avoid them.
Focus on the work you love and enjoy the most and leave the financials to experts!
Please share your thoughts with us, and feel free to contact us if you’re looking for quality bookkeeping services.
Thank you for your time!
