10 Small Business Bookkeeping Mistakes

Keeping your finances in order is crucial for the success of your business. Even if you're running a small operation, bookkeeping is a critical component that cannot be overlooked. While it may not be the most exciting task, it's important to ensure accuracy to avoid costly mistakes that could hurt your business in the long run. As the person responsible for completing these tasks, it's important to recognize that you may not have the same level of accounting expertise as larger businesses that can afford to hire specialized professionals.

That's why it's crucial for you to educate yourself on the common bookkeeping mistakes that small business owners often make. By learning about these errors and taking proactive steps to avoid them, you can effectively manage your finances and set your business up for success.

1. Not Keeping Low-Value Receipts

According to Business.org, one common bookkeeping pitfall is not keeping low-value receipts. While the IRS may not necessarily need these receipts, they can be helpful if the business undergoes an audit. This is particularly important for you if you run a small business, as many claimed deductions are likely to be the total of several smaller purchases. As a small business owner, you may either keep physical copies of these receipts in one safe location or scan and upload the receipts to a preferred digital accounting software.

2. Failing to Track Reimbursable Expenses

Failing to track your business’s reimbursable expenses can result in costly consequences. Your company may miss out on tax deductions and pay more in taxes. To prevent this mistake, consider using expense-tracking software and recording expenses as soon as the business accrues them.

3. Incorrectly Classifying Employees

If you hire various professionals, such as employees, consultants, contractors, or freelancers. you must correctly identify your employees, but classifying these professional can get confusing. Incorrectly classifying employees and contract workers may lead to severe negative consequences, including lawsuits and tax penalties.

4. Having Communication Issues

One of the keys to effective bookkeeping is regular communication between the person responsible for the bookkeeping duties and everyone else within the small business. A lack of clear and consistent communication can confuse and lead to errors. If, for instance, someone buys additional supplies or pays out a bonus without informing the bookkeeper, the resulting inaccuracies from the lack of communication can be costly to the business.

5. Failing To Complete Reconciliations

One way to identify your business’s financial well-being is to reconcile the company’s books with its bank statements. Reconciliation is a complex but crucial process that can help you determine your business’s available cash and identify most financial errors before problems escalate. A common bookkeeping mistake is avoiding reconciliations, completing them incorrectly, or failing to complete them regularly. You can avoid this issue by researching how to reconcile the books correctly and by regularly setting aside time to complete the reconciliations.