Certain business operations such as accounting, sales and tax filing act as a backbone for every new venture. Without the success of these crucial functions, a startup fails to survive. One such function is bookkeeping or recording of everyday financial transactions. Every entrepreneur requires accurate financial reports to evaluate how their business is performing and to strategize for the future. Without a strong accounting and bookkeeping practice in place, making financial and strategic decisions becomes difficult.
If you survey startup or small business owners about whether or not they enjoy bookkeeping, then you will be surprised to find hardly one or two who reply in an affirmative.
Keeping track of day-to-day financial transactions and recording them is a vital requirement for successful bookkeeping. The process demands a good amount of time and effort. Most entrepreneurs start their business with excitement but end up being haunted by this tedious and mundane task of bookkeeping. Eventually, they suffer costly mistakes due to erroneous bookkeeping.
Although bookkeeping mentoring services are recommended, knowing the most common bookkeeping mistakes can also help you prevent glitches. Today, we take you through some common bookkeeping errors that every startup makes and how you can avoid them –
One of the most disastrous mistakes that startup or small business owners make is not having separate bank accounts for their personal and business finances. Many entrepreneurs fail to have a different bank account for their commercial transactions and end up facing financial and legal troubles. Having a single account for business and personal transactions makes it difficult to track specific entries, especially during tax preparations. You will have to rely on your memory to track down a list of debits and credits for your business, which is practically impossible.
When starting a business, the first thing you must do is create a separate bank account. This allows you to have a separate record of all the company-specific transactions and also makes your year-end tax preparations easier.
A bank reconciliation statement helps reconcile your financial records with your entity’s bank account statement. The objective of this statement is to avoid discrepancies that may arise between the transactions recorded in your accounting books and the bank’s statement. Most startup owners run their business on a cash basis. They monitor the actual inflow and outflow of cash but fail to reconcile transactions that they make through their bank accounts. For example, they miss out on recording interest or income expenses or bounced checks. Failing to reconcile statements can lead to discrepancies in your most important financial reports – the profit and loss statement and the balance sheet. Make sure you have a bank reconciliation statement so that you can avoid financial and tax problems in the future.
If you ask startup owners about the biggest problems they face while bookkeeping and tax preparation, then you are likely to get one common answer, i.e., finding lost receipts and tracking small expenses. As mentioned before, bookkeeping is a time-consuming task. Most startup founders are so occupied with business development and other vital functions that they procrastinate the recording of transactions. Additionally, the lack of an efficient document filing system leaves them with a problem of lost receipts. Proper documentation is required for generating accurate financial reports and during CRA audits. Have small lock-up boxes placed throughout your workspace or install an invoicing software to help you scan and save vital receipts. Also take time out weekly for bookkeeping and accounting. Hiring a bookkeeping mentoring service can also help you develop an effective record keeping system.
Petty cash is a small amount of cash kept aside to fund small day-to-day transactions. Since this is a small amount of money, startup owners often overlook the importance of managing this money. They fail to have a tracking system to ensure no expense is missed out while they are accounting and preparing financial statements. While petty cash may seem a small amount of money spent in a day, it adds up to hundreds of dollars in a month. As a result, it creates issues in the financial reports. Make sure you set up a system to record and track these tiny transactions. Having an electronic system and obtaining receipts make it easier to record and track these expenses.
Many startup owners perceive taxes as the thing that arises only during the end of the financial year. Little do they know that they are overlooking other vital tax payments, i.e., sales and payroll taxes. Eventually, they have to deal with the last minute tension and pay hefty fines for messing up with their dues. Depending on the nature of your business and goods and services, you may have to pay sales tax monthly or quarterly. Most small business owners face confusion with payroll tax preparations. They miss out on the differences between an independent contractor and an employee. If you fail in accurately calculating and paying your dues, you could be held liable and be charged heavy fines. Prevent this by understanding tax laws relevant to your business or hire a taxation service to prevent heavy losses.
When your startup is initiated, the financial figures are manageable. However, as and when you progress these figures amplify and can run into thousands of dollars. Tracking and recording these huge numbers may become difficult for you, especially when you already have other essential tasks on hand. Many business owners strive to manage everything on their own. As a result, they make costly errors and incur huge losses. There are many reasons to outsource your entity’s accounting and bookkeeping to professionals. A professional accounting service provider has the knowledge and is well aware of all the laws pertaining to your business’ financial management. Plus, they take away all the hassles of bookkeeping and leave you with free time to focus on other vital tasks and drive your business toward success.
Now that you know the most common mistakes, it’s time to go back and take a look at your entity’s bookkeeping system. Rectify any existing issues and revamp the system to prevent these potential mistakes. Hiring a bookkeeping mentoring service can be useful in strengthening your accounting and bookkeeping system. Read on to find out how:
Bookkeeping mentoring is offered by professional accounting service providers. These people are a team of experts with vast knowledge and experience in business management and accounting to their credit. Since they deal with financial management day in and day out, they are well versed with the system and regulations surrounding business and financial management. They can educate you or your accountant on compulsory accounting and bookkeeping laws and other tax principles pertaining to your business. Plus, they can help you with time management regarding bookkeeping tasks. This allows you to have an efficient system in place, prevent errors, and save money that you might have to spend otherwise for managing your losses.
Although businesses automate most of their operations, including accounting and bookkeeping, they fail to reap real benefits of the technology. This is because most startup and small business owners lack the knowledge of important features of the accounting software that they use and fail to use it optimally. Bookkeeping mentoring services educate you about the latest financial management software. They can acquaint you with the important features and teach you beneficial techniques that can help you save time on this mundane task.
A bookkeeping system that is prone to errors does not allow you to generate reliable financial reports. Without an accurate picture of your venture’s financial status, how are you supposed to pave the future course of action? Professional bookkeepers help you identify the loopholes in your current system and eliminate them. Their guidance helps you set up a systematic bookkeeping system that provides you with flawless financial reports. You can depend on these reports to take strategic decisions that can take your business to successful heights.
While bookkeeping mentoring is one option, you also have the choice of outsourcing your accounting and bookkeeping to professionals. If you are facing difficulty with accounting and bookkeeping, then connect with us, and we will be happy to help.
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