The Top 5 Bookkeeping Mistakes Small Businesses Need to Avoid in 2023
As a small business owner, learning to manage your own bookkeeping is essential to improving your business’s financial situation. But with so many different bookkeeping and accounting software programs available, it can be hard to ensure you aren’t getting tripped up on little mistakes here and there. To help you out, we’ve compiled a list of the top five bookkeeping mistakes small businesses need to avoid in 2023. By avoiding these common mistakes, you’ll be able to save time and money while keeping your books in order. So without further ado, let’s get started!
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Not Knowing What You’re Spending Money On
This one is a common mistake in small business bookkeeping cases our team helped with during 2022. Business owners often encounter cash flow and budgeting problems without knowing where their money is really going. Cash is often forgotten during your busy planning phases; tracking cash-based expenses can help with this.
With cash tracking, you can pay better attention to how cash flow affects your financial balance sheet, solving that high-pressure cash crunch many smaller businesses fall victim to, like when it’s time to pay suppliers suddenly. Knowing what you’re spending your money on requires paying attention to bank statements, cash receipts, and documentation.
In addition to providing insight into where cash comes from in one’s business, such records can also inform them of all of their cash outflows. By accurately describing cash expenses, businesses can gain better control over the cash flow and keep a closer eye on their overall financial picture. It’s easy to forget your cash flow when it’s unmanaged, but this lack of awareness can have serious consequences.
Keeping a close eye on cash coming in and out is an excellent way to start; it can be as simple as regularly checking your balance sheet and reviewing bank statements. This will help you spot any cash crunches that can occur when cash begins to run out and avoid awkward situations where you cannot pay suppliers on time. Knowing how much money is leaving your business and why means you can budget better and tackle cash problems so they don’t begin to snowball.
Not Keeping Track of Inventory
Not tracking inventory can be a major financial burden for small businesses. Tracking the items coming into and leaving its premises makes it easier to determine whether the sufficient stock is available for customers or if additional purchases will be needed. Poor tracking may also make it difficult to generate accurate financial statements.
Such data is essential for understanding a business’s profitability, making tracking crucial for small businesses. Fortunately, tracking inventory is a straightforward task with the help of adequate accounting software and bookkeeping services. With proper tracking, small business owners can gain better visibility into their product stock and sales figures, enabling them to make more informed decisions regarding profit and loss statements.
Failing to Reconcile Accounts
Reconciling accounts is a critical task for any business to remain financially healthy. This involves ensuring that all financial transactions are accurately recorded in both the books and the bank accounts. An easy way to reconcile accounts is to ensure that every sale, payment, or other financial transaction is properly documented and accounted for on both sides; this includes profits and losses. A great tool to help streamline this process is bookkeeping software which can automate most of the bank reconciliation tasks.
With bookkeeping software, it becomes easier to reconcile accounts as financial data flows in from different financial activities, allowing businesses to easily keep track of their finances and prevent potential problems associated with not reconciling accounts. Leveraging these tools ensures that you’ll have reliable financial information for planning and budgeting decisions, with the added ease of it being directly linked to your chosen bank account.
You can see if a cash crunch is coming and take steps to avoid it by watching when you need to pay suppliers and when you can expect payment from customers. More so, this software also doubles as a general accounting system that can integrate well with your preferred bookkeeping system existing spreadsheet accounting or bookkeeping system you may already be using.
Paying Employees Late or Not at All
Running a small business usually involves juggling various tasks and priorities. Still, small business bookkeeping is one of the most important things to keep in mind. Small businesses need to ensure their employees are paid on time, as late payments can have legal and financial consequences. Accurate financial reports are necessary to provide enough money is in the bank account to cover payroll.
Late payments can lead to hefty bank fees, not to mention being liable for penalties due to failed tax returns. A successful small business needs an intuitive small business bookkeeping strategy when it comes to salary expectations & payment cycles, especially as employees will naturally expect regular payment each pay period or month.
The effects of late payments or non-payment should not be overlooked, and small business owners must understand the importance of managing their finances appropriately to keep their staff content and maintain a healthy cash flow. Our best tip is to treat these tasks as seriously as you would paying bills on time, and even consider accounting for these in your accounts payable ledger so you always remember.
Not Having a Budget
Having a clear and achievable budget can be beneficial to a business. With accurate sales data records, it’s possible to determine where the money comes from and where it’s being spent. Accounting software can help, but if you need to learn how to keep track of financial information such as financial statements, bank accounts, accounts receivable ledgers, and tax returns, then you should consider professional bookkeepers to help keep financials organized.
It’s also important for small business owners to stay on top of their bookkeeping or risk financial problems due to inaccurate financial statements. Having a budget is essential for running a successful business, and not creating one could generate consequences that may leave you scrambling to get your finances back on track.
We know how time-consuming and challenging managing your finances can get as your business grows. Failing to stay on top of your bookkeeping method can have serious consequences. Not only will it be difficult to stay across your cash flow statements and financial data come tax time, but you may also end up paying employees late or not at all. This can lead to a loss in morale and productivity, which is bad news for any business. In order to avoid these problems, it’s important to keep track of your finances and make sure that you have a budget that you can stick to.
The Shoebox Books & Tax team can help you with whatever you need in order to get your finances in good shape. Whether you’re looking for help from an experienced bookkeeper, issuing invoices, payroll, reconciling accounts or setting up a budget, we’re here for you.
Contact us today to learn more about how we can help!