Common Bookkeeping Mistakes People Make
In a single day, a small business can have hundreds of transactions. The connection between bookkeeping and tax preparation is clear to many business owners. However, far too many business owners overlook the importance of accurate, complete and timely financial data as it pertains to setting and achieving their business goals.
Hiring the services of a professional accountant or bookkeeper may appear unnecessary and price prohibitive to individuals or small businesses. Small business owners often think they can handle the responsibility with a little help from the internet and a couple of cups of coffee. This, in most cases, is a sure path to frustration and incorrect bookkeeping practices.
To help you avoid some basic errors that could prove to be costly, Findlay CPA has put together a list of the most common bookkeeping mistakes people make.
1. Inadequate allocation of time and resources
We often see entrepreneurs underestimating the importance of complete, timely, and accurate financial information. The failure to carefully consider and allocate adequate time and resources to the bookkeeping function has a compounding effect and is certain to give rise to a myriad of other business and accounting errors. Outsourcing this laborious task to a professional bookkeeper or certified public accountant is wise as it allows you to concentrate on other areas of your business while staying on top of your finances.
2. Taking on the role without the appropriate training and skill
Bookkeeping functions like the preparation of your annual tax returns require that your business’ financial information be categorized in a way that complies with the Internal Revenue tax code. Attempting to file your tax returns without already knowing the process and having experience in the same is challenging at best, however, it can lead to inconsistencies, mistakes and you missing the deadline. Not to mention the potential to trigger an IRS audit and/or penalties and interest.
3. Over-reliance on software defaults
In a world of high-speed internet and apps for just about everything, a mistake we see increasingly often is an overreliance on canned software programs such as QuickBooks and QuickBooks Online. While these technological advancements have been designed to make your life easier and basically do it all for you, this is often not the case. Relying solely on software to maintain your general ledger can create a mess, waste time, create undue stress, and end up costing you more on a big general ledger clean-up project. The old adage “garbage in, garbage out” still holds true.
It is advisable to enlist the services of a trained bookkeeper or accountant to check your QuickBooks records regularly to make sure all is complete and as per accounting and income tax standards.
4. Last-minute rush
Attempting at the last moment to clean out the shoebox of receipts and organize them into meaningful accounting information sets the stage for a plethora of issues. We have noticed that business owners who wait until the end of the year to address bookkeeping tend to be more stressed, have lower cash flows, and often higher tax bills. Routinely updating your bookkeeping records helps you stay on top of tax planning opportunities as no receipts are misplaced, you can recall what the expenses pertained to, and which account or bank was used in each transaction.
5. Ignoring the importance of periodic financial statements
Periodic financial statements provide the data needed to measure your business’ financial performance. A failure to prepare, complete, timely, and accurate financial statements may result in the failure to identify opportunities to generate more revenue or avoid financial disaster. Partnering with a knowledgeable CPA who can guide you on the interpretation of financial statements will help you stay in control of your cash flow, support borrowing, encourage new investors, and promote positive trends in your business.
6. Prioritizing price over knowledge and experience
In an effort to save money, business owners may be inclined to partner with the least expensive bookkeeper. While this move may appear to save money at the outset, it may become the more expensive option due to a lack of overall expertise in dealing with clients in your industry. As the old saying goes “you get what you pay for.” It is best to hire a service provider who is sufficiently experienced in your industry. For more details, please see Top Five Things to Consider When Choosing a Certified Public Accountant.
To avoid these and other mistakes, reach out to the leading certified public accountants in Dallas, Fort Worth at Findlay CPA. We provide objective guidance and services that are squarely focused on your agenda. We engineer strategies designed to help you keep more of your business income and reach your long term business and personal goals. Our services include accounting and bookkeeping, payroll and cash management, business tax preparation, tax resolution, tax planning, financial planning as well as consultation for small business owners. We serve clients across Grapevine, Dallas, Fort Worth, Arlington, Plano, Irving, Southlake, Watauga, Keller, Bedford, and the surrounding areas.