For a lot of small business owners, managing the bookkeeping for your business can be a very time consuming and even confusing. I'm going to give you the top mistakes I see my clients make, so you can avoid them with your business.
1. Not reconciling your accounts (bank, Paypal, etc.)
While putting all of your invoices and expenses into your accounting program is important, you need to complete the process and reconcile your various accounts too. If you skip this step, you can also miss expenses that could save your money in the future. And, don't forget to reconcile your Paypal account, also.
2. Adding expenses for items like uniforms and gas without knowing what's allowed
While you may think you need a new wardrobe for your new business, it may not be allowed as an expense according to the IRS. You also need to know when you can expense gas charges and when you cannot. Ensure that you know what expenses are allowed, so you aren't exposed to tax liabilities later.
3. Not separating business and personal expenses
It is always best, and if you are an LLC, it is required that you keep your business and personal expenses separate. This means you should have a business bank account and if a business credit card, if needed. Tracking expenses and payments is much easier when it is all going through the same bank account
4. Entering payments for loans incorrectly and not understanding the difference between the principle and interest portions
If you have a business loan, you need to enter your payments correctly in your accounting program. Also, ensure you understand how to track the principle and interest portion of that loan payment and how that can affect your tax liabilities.
5. Paying for business expenses personally and forgetting to count them as business expenses
Even though you are supposed to keep your business and personal expenses separate, there may be times where you use personal cash or credit card to pay for a business expense. In these cases, you need to remember to track that expense in your business accounting program. You don't want to miss that tax break at the end of the year.
By avoiding these mistakes you will make certain that you have a more accurate accounting of your business operations. This will allow you to make smarter, more well informed decisions about your business as you grow. Additionally, you will make sure that you aren't making errors that can cause you to wither miss out on tax savings or worse find out later that you money in taxes, plus penalties and interest.
Written by Tom Barnhill, Owner of Business by Barnhill