Common Bookkeeping Mistakes Made By Sole Proprietors And Small Businesses
From small businesses to Fortune 500 companies, no one escapes the dreaded task of bookkeeping. While it’s not one of the more glamorous parts of the job, bookkeeping is at the heart of all business success, which means errors can be crippling.
For example, neglecting to save receipts, failing to track reimbursable expenses, and failing to deduct sales tax from total sales all lead to increased overall tax liability and cost your business money. Similarly, trying to do it all yourself can cause unnecessary stress as, unlike professional bookkeepers, people understandably lack the required skills to do the job quickly and efficiently.
To help you avoid some basic errors that could prove to be costly, The Roving Accountant has put together a list of the most common bookkeeping mistakes for sole proprietors and small businesses.
1. Trying to get forms signed just before the deadline
There are strict deadlines for filing income tax returns, so when paying subcontractors through your business, collect a W-9 form before issuing the payment whenever possible, even if the first payment is small. Similarly, once you have paid out $600 to one person, a 1099-NEC is required to be filed by January 31st.
Emailing and calling around frantically trying to get the information and forms signed just before the deadline is way too stressful and should be avoided at all costs.
2. Paying personal bills and expenses from your business account
Personal, living, or family expenses are generally not deductible. It’s a good idea to keep separate business and personal accounts as this makes it easier to keep records. Additionally, in the case of an audit, if an IRS agent discovers you’re using a business account to pay personal bills, it could result in the agent declaring your accounting records unreliable. This could lead to a complete examination of every business expense claimed for tax purposes.
Remember, never pay personal bills out of your business account. Transfer the money to your personal account or write a check to yourself, deposit it, and then pay your private bills. If you are unsure if it could be a business expense, pay it from your personal account and check with your accountant to see if you should be reimbursed using an expense report.
3. Not having a clear vision for your business
Not having a clear vision for your business can make decisions challenging and targets harder to hit. I am guilty of this for sure. Recently, I redesigned my business to be primarily remote, thanks to the pandemic. There are so many software platforms and services to choose from I was overwhelmed and spent money I should not have. Live and learn, right? Well, not exactly. Creating my mission statement near the end of the re-branding cost me a pretty penny. Luckily, I had monthly subscriptions that I was able to cancel, which allowed me to pivot and find a couple of business coaches helping me get where I want to go.
To avoid these and other mistakes, reach out to the expert at The Roving Accountant. Kelly Burton is an accountant and certified profit first professional in Firestone, Colorado. Her sole purpose is to be a trusted business resource for small business owners. Not just your bookkeeper! Apart from bookkeeping and accounting services, she also offers management as well as Profit First services. She serves clients across Firestone, Weld County, Boulder County, Henderson, Greeley, Loveland, Longmont, and the surrounding areas.
For a complete list of her services, please click here. If you have any questions about bookkeeping or accounting, she’d love to hear from you. Please contact Kelly here.