You hung your sign, answered your phone, and even had some happy customers. Congratulations, you are in business! Now’s the time to take the initiative with your books, remember, simple bookkeeping mistakes can cost thousands of dollars, and hours of frustration later. Don’t let these things happen to you!
Five Bookkeeping Blunders to Avoid
- Payment pain. When a client sends a check for an invoice, do you count it as a sale or are you receiving the payment against the invoice. Otherwise, you artificially inflate your income and do not close an open invoice resulting in inaccurate receivables.
- Is an equity investment income? This blunder stings come tax time. Let’s say you invested $10,000 into your business. It should go on the Balance Sheet. A common mistake is to book it as income and, if not caught, business owners will end up paying taxes on the money as income. Remember: Investments are not income!
- No receipt! No write off! Save every receipt. Sure, a receipt of less than $75 may not be required by the IRS, but they provide necessary backup documentation for many deductions you may claim. Carry an envelope and track these expenses daily. The relief of having accurate records way outweighs the “should” you can put on yourself at the end of the year. Don’t let out of pocket expense eat into your paycheck. Ten bucks here and there adds up. It’s easy to forget quick meals grabbed while on business and the time you ran out of staples before your presentation to a client. Be sure and keep close track when you use personal cash or your credit card.
- Paper is peace of mind. The world may have gone paperless, but business can’t. As long as audits exist, so does the need for a paper trail. Keep supporting receipts of deductions, expenses and payroll. Computers are convenient, but the paper trail is proof of good accounting!
- Who is on first? When it comes to what type of employees you have, each one is handled differently. Contractors, freelancers and consultants can be an accounting nightmare. Try and streamline employee types because different kinds of employees require a different set of rules and tax implications.
Don’t let these things overwhelm you! Unfortunately many people see this and just give up. Numbers aren’t your thing? Too bad! As a business owner you need to know your numbers and you need to have a basic understanding of accounting. I wish I could sugarcoat this issue, unfortunately though far too many business owners do not take their accounting seriously enough and no matter how good the product is it can be the difference between making it and sadly, not making it.
I promise you; a little effort will pay off many dividends.
Originally posted by Phillippe Lerner on November 4, 2014 at 7:00am