If you are a small business owner, one of the most challenging aspects of your entrepreneurial life is to ensure that your financial records are done correctly. In many cases, new business owners make serious bookkeeping errors due to a failure to understand actual accounting procedures and practices. These are the 10 most common bookkeeping errors that businesses make that can easily be avoided.
1.Throwing Away Receipts For Small Items
The Internal Revenue Service does not legally require a business to retain receipts for items less than $75.00, however, if you keep these receipts it can help in any audit you have in the future regarding aggregate expenses.
2.Commingling Personal and Business Funds
No matter the size, all businesses must have separate finances and bank accounts for business and personal needs. Settling up a bank account is simple, and can save you stress and frustration if you are ever audited by the IRS.
3. Expense a Large Purchase in Total Right Away
Anything you purchase that will last longer than a year needs to be “capitalized.” Large items may include a car, computers, printers, or any other large purchase. These items depreciate over time, and there is a financial benefit to capitalizing on that purchase.
4. Failing to Keep Hard Copies
Many businesses completely rely on the fact that almost everything is electronic now. However, there is still a benefit to keeping hard copies. Having both digital and paper financial documents ensures that your records are always available and accessible.
5. Doing Your Own Financial and Tax Preparations
Finances for businesses can become extremely complicated quickly. You may need to make complex financial or tax determinations regarding your business at any time. Hiring a professional not only ensures this will be done correctly, but you will also have the peace of mind just to know it is being done correctly.
6. Failure to Classify Employees Correctly
Employees and freelancers (independent contractors) are classified for the IRS differently, and different taxes and documents are required. Make sure you always classify your employees/freelancers correctly.
7. Failure to Use Appropriate Software for Bookkeeping
You may think that your small business can get by fine with just an Excel spreadsheet, however, bookkeeping software will ensure that you handle payroll and taxes correctly and ensure that you have done your bookkeeping correctly.
8. Not Maintaining Up To Date Records
Bookkeeping is typically the last thing on all business owners’ minds. However, you must reconcile bank accounts and handle your finances often to ensure that you are following all appropriate laws, and ensuring that your payroll and taxes are done correctly at all times.
9. Thinking the Company Needs a Petty Cash Account
Most companies do not truly need a petty cash account. In most cases, these accounts tend to have financial challenges associated with them as they are not tracked carefully and there are not strict internal controls regarding the use of these monies. Truthfully, most companies do not need one.
10. Failure to Contact an Attorney
While many small business owners contact a bookkeeper, they fail to contact an attorney to ensure that their legal rights are protected regarding their finances and business decisions.
We would welcome the opportunity to visit with you about your business. Contact an experienced Jupiter business attorney today at the law offices of Julianne Frank, Esq. at (561) 220-2528 for a free consultation today.
IRS: What kind of records should I keep