Bookkeeping is a common activity for most business owners. But with your energy split between the multiple hats you wear on a daily basis; multitasking can very easily result in oversights and mistakes. In fact, good bookkeeping is the backbone of a healthy business and really requires a meticulous and dedicated eye. So what are the 6 common mistakes you might be making with your business bookkeeping?
1. Not having a system to track all your receipts
So many business owners don’t realise the importance of keeping phone bills, bank records and receipts. Receipts are vital evidence to support tax deductions and write-offs when it comes to tax season. Without available receipts, you may miss the opportunity to write off expenses. A simple way to formalise this is to get a document management system so you can scan in your receipts and upload them into a handy filing system. That way they are on hand when you need them.
2. Lack of multiple file backup methods
Cloud backups of financial data are fast replacing legacy desktop programs. While paperless is preferable for many reasons, a lot of companies still like to have hard copies in case files are lost or corrupted. This may not be entirely necessary as items on the cloud can never be fully erased but it's important that you have a good bookkeeper and professional IT support to ensure you have help retrieving data should something go wrong.
3. Mixing personal and business expenses
Did you know that one in five business owners merge their personal and business spending? This can become very complicated when it comes to bookkeeping. Especially when it comes to filing your right offs, missed expenses and tax deductions. It can also create vulnerabilities in the event of being sued or audited. The main issue is mixing business and personal affairs which makes it very difficult to create a clear picture of both your business and personal finances. This can become a problem when it comes to budgeting and planning.
4. Incorrect categorisation
A skilled bookkeeper understands the importance of good organisation when it comes to finances. Core to this is correct categorisation which ensures your books are accurate and you have a clear understanding of your business’s financial position. The improper categorisation can result from having categories that are either too similar or from having incorrect categories altogether. This can make your books chaotic which can become overwhelming. This, in turn, gets in the way of informed critical decisions about finances and future prospects.
5. Weak invoice management
Invoice management is essential for good cash flow and understanding how you are going to get payments. In fact, over 40% of businesses struggle with cash flow when it comes to collecting payments. Some common invoice-related issues include: Failing to create clear and easy-to-pay invoices, failing to invoice on schedule, or enforcing late fees and reminders. ‘Good faith’ only goes so far when it comes to running a business and so it’s up to you to structure effective invoice management to make sure you have healthy cash flow.
6. Falling behind
Staying up-to-date on your bookkeeping is essential if you want to run an efficient business. The old days of filing receipts in a shoebox are behind us and bookkeeping needs to be digitized and managed daily. There are so many software choices out there to help you harness this tiger, but whichever you choose, find one that organises your business records, prepares financial statements and projections, and supports the day-to-day business running.
The bottom line
If you are making two or more of these common errors in your business then perhaps it’s time to put your ‘bookkeeping’ hat aside and invest in professional support. Growing your business may mean taking on a professional bookkeeper and investing in your software infrastructure. If this feels like a big investment then consider a cash advance for quick working capital that will help you finance the development. Remember that a good bookkeeper will help you manage the cost of their services and ensure that this investment in a growth-enhancing activity will pay for itself in the long term.
Efficient bookkeeping is fundamental when growing your business and applying for business finance, get in touch with Merchant Capital today to find out if you qualify for a cash advance that can assist in building your business.