As a small business owner, the responsibility of solely managing every aspect of your business can be challenging. Especially for small businesses with a single person or a very lean team. As a result, some small businesses overlook bookkeeping or make bookkeeping mistakes. Bookkeeping is a crucial role for tracking cash flowing in and out of a business. In addition, bookkeeping provides insights into what drives the growth of your business. Poor or no bookkeeping can lead to blind spots or diminished growth in your business.
To avoid this, here are the top 5 bookkeeping mistakes made by small business owners and the tips on avoiding them.
- Combining personal and business expenses
It is highly advisable as a business owner to separate your business expenses separate from your personal expenses. The reason is that you want to track all cash flow that’s required for growing your business. For example, understanding which expenses can be eliminated or reduced. Keeping personal and business records separate allows you to be organized in ensuring that your separate personal and business financial goals are identified so you can accomplish them.
Pro tip: Allocate a set salary for yourself so that it can be used separately for your personal expenses. This will help in ensuring that your business expenses and personal expenses are not muddled together.
- Lacking digital records of your business transactions
Digital transaction records help highlight the key elements that drive your business growth. For example, a business owner will find it hard to determine customer loyalty by using paper records compared to using digital records. With digital records, a business owner can determine your most profitable product/services, frequency of customer purchases, most expensive categories etc.
These details are essential in growing your business. Vencru offers free tools that can allow you to record your business transactions and track performance metrics that help your business grow.
- Waiting until the last minute to perform bookkeeping
Very often we see small businesses leave bookkeeping to the end of the month or even the year-end. Playing catch-up is stressful and not ideal for two reasons:
- You miss the opportunity to use the information derived from bookkeeping to drive your business growth
- Waiting longer makes the task harder. Trying to collate every sale, expense, and inventory months later is tasking
Instead: Start a routine. Set aside 20-30 mins every week to reconcile your records. Send invoices to clients even if you have verbally agreed to sell a product or perform a service. If the client has made a payment, ensure a sales receipt is sent. Invoicing apps like Vencru, Invoice maker or Wave allow you to adjust the date when creating an invoice or receipt.
- Thinking that cash flow is the same as profit
Profit is what is left after expenses have been paid, while cash flow is the inflow and outflow of cash to your business. A company’s profit can be higher than cash flow because some clients may have outstanding payments. Tracking your cashflow is important so you don’t run out of funds to cover expenses. It also helps you identify debtors so you can follow up with them ahead of upcoming bills.
Tips: Be proactive with debtors. Follow up with debtors weekly. Ask for deposit payments when possible. Track your cash flow and profits separately.
- Throwing away expense receipts
Another bookkeeping mistake is throwing away receipts, losing tax deductions. Keeping business receipts is important for tax purposes. Understanding which business expenses are tax-deductible can increase your profits.
Some common tax-deductible expenses include:
- Car and travel expenses
- Salary and wages
- Business office rental
- Home office expenses
- Business meal expenses
- Machine and equipment expenses
- Interest on business debts
- Other work-related deductions
Verify which business expenses are tax-deductible by contacting your country’s tax office
Pro tip: One way of tracking expenses is to utilize an app to store your expenses digitally. This way, you can retrieve the information during tax season.
Bookkeeping mistakes could be costly to the growth of your business. At Vencru, we aim to help small business owners grow their business by accessing the right information. We hope these tips have helped you understand bookkeeping mistakes to avoid and how to avoid them.
For more helpful tips and tricks on how to manage your bookkeeping, and track your invoices and expenses, visit Vencru Business Corner to read more articles like this one!