People often start their own companies for several reasons.
Some people are driven by the desire to create something new and watch it grow while others dream of being their own bosses and charting their own destinies. Nevertheless, there is always that one aspect that most entrepreneurs forget about until they actually need to start doing it: Bookkeeping.
To run a successful business, it’s not enough to make money because you need to be sure that your records show it as well. Without a proper bookkeeping system, you’ll never know for sure whether you’ve achieved profitability, or if you’ve been swimming in losses.
Bookkeeping also provides the data to make accurate projections and sound business decisions. Unfortunately, whether because of budget concerns or misinformation, many business owners try to do this by themselves and make crucial mistakes with their bookkeeping efforts.
In the sections below, we will share four common bookkeeping mistakes that are unprofitable for your business’s growth:
1. Not making a separate business account
You should never mix business with personal matters – this principle is nowhere more appropriate than with bank accounts. It can be tempting to forgo opening a new account if you’re starting, but before long, keeping track of your business’ cash flow will be particularly difficult. It can even cause mismanagement of funds. Even if you’re still starting with your operations and you might not have too many employees yet, you should still separate your accounts early on.
2. Neglecting to set a budget
Having a budget is the first step in ensuring your company’s profitability. It doesn’t only provide you with the lifeblood to begin operations, but it’s also your benchmark to determine success. You could make thousands, even millions of dollars in gross income. However, without a budget that’s been properly audited, you’ll never be able to truly know if you made a profit.
This is why with regards to bookkeeping, you need to ensure that your cash flow is transparent, and everything is accounted for. Setting a definite budget allows you to figure out whether you are going over or under the budget so that you can adjust accordingly.
3. Writing off donations as “charitable” tax deductions
The Internal Revenue Service (IRS) has definite rules on this topic. Sole proprietors can make tax-deductible donations to a registered charitable organization, but not if you are given goods or services, such as advertising space, in return. To the IRS, this is no longer a donation but a business expense.
4. Failing to separate employees from independent contractors
Depending on the nature of your business, you might begin working with full-time employees and independent contractors. While both are rendering services to you, the former comes with law mandated entitlements, such as minimum wages, overtime pay rates, social security, leaves, and other benefits that your company may provide. Independent contractors, on the other hand, are like companies, where you only pay for their services.
Classifying their difference correctly is particularly important for bookkeeping purposes, especially when it comes to filing tax returns. Misfiling will not only result in misused funds, but it can also subject you to an audit.
As your business grows, so will your bookkeeping tasks as well. Before long, it can be overwhelming, and you might find yourself not being able to focus on actually running your business. Your small businesses can benefit from the services of personalized bookkeeping services so that you have room to do the things that you enjoy, such as looking for business opportunities and growing your company.
Handling the finances of your company may never be easy, especially when you don’t have the expertise. With our team of accounting and finance experts, we’ll remove the stress of bookkeeping and taxes from your hands so that you can focus on growing your business. Contact us today to learn more about how we can help.