Written By WISE Partner: Carla Caldwell, Founder and CEO of Caldwell Consulting & Training
Bookkeeping is keeping up with all the money that comes in and goes out of your business. For the money coming in, this includes recording sales, invoices, payments from customers, or any money deposited. For the money going out, this includes bills to vendors for supplies and inventory, payments on loans, credit card charges, and any other purchases. Bookkeeping can also encompass payroll, inventory management, sales tax calculations and filings, and depending on the business, recording other taxes.
The tax man cometh. And as a small business owner, it isn’t just the taxes we owe that give us anxiety, it’s the preparation for that annual uncomfortable conversation that follows hours of gathering information, bank statements, receipts, and check stubs from the far corners of the office in hopes that you found it all!
Does any of this sound familiar?
Luckily, tax season doesn’t have to involve such stressful prep work. With small bookkeeping adjustments throughout the year, you can take the dread out of tax day for good. Here are three big mistakes many business owners make and how to avoid them.
Mistake #1:
Since your business is an entity (think of it like a person, separate from you as the owner) it has to keep track of all the ins and outs related to its money. The first mistake is commingling (mixing) personal and business expenses. For example, paying your hairdresser or barber with your corporate credit card would be a mistake. That is a personal expense, and should be paid from your personal bank account. Alternatively, paying for a business expense out of your personal bank account makes claiming that as an expense more complicated. Even if you own your business 100 percent, pretend you have a manager to report to that will want to know how you spent the company funds.
Tip: Attach a label to your debit/credit cards in your wallet so it’s easy to identify which is personal or business.
Bonus Tip: When you eat out for business, write on the receipt who you ate with (and why) so that later you can remember the expense if needed.
Mistake #2:
Most people are now familiar with tools like QuickBooks Online for their business accounting. (We are big fans and use it ourselves.) The problem is that many aren’t using the application properly. Transactions can be missing, categorized improperly, and/or be recorded incorrectly. This can affect your operational reporting as well as financial reporting, which can result in making incorrect business decisions, paying too much in taxes, or missing great business opportunities.
Tip: Take some time to learn about the application. One place to start (for QuickBooks Online) is here with their video tutorials.
Mistake #3:
Bank reconciliations remind most people of a paper checkbook and that tedious process of checking what cleared and what didn’t. Technology has helped this become a much easier process, but either way, it’s still completely necessary. The mistake is not doing them, and not doing them in a timely manner. Catching fraudulent charges or duplicate transactions in your accounting application are obvious issues, but what about forgotten subscriptions you are still paying for? This critical process may not be fun, but it can be eye-opening and money-saving.
Tip: Do your bank and credit card reconciliations every month by about the 10th. Also, save a digital copy of the statements somewhere besides in the bank!
Technology has made bookkeeping much more automated, and therefore much less painful. Additionally, integrating apps can reduce or mostly eliminate tedious data entry, all the while providing insights into your business. This will give you confidence in opening that new location, hiring that next employee, or relieving the stress of the end of the year and actually getting your taxes filed without an extension.
Need help getting your taxes ready? Hire WISE Partner, Carla Caldwell, Founder and CEO of Caldwell Consulting & Training. She works with business owners (especially non-profits) to bridge the gap between growing business and specific accounting solutions. Carla also helps accounting and bookkeeping firms implement the tools that help them be more successful – from value pricing and process development to the apps that support their systems. Learn why companies are using Caldwell Consulting & Training to get better organized, more efficient systems and stronger results.
