I commend my clients who try to take on some bookkeeping responsibilities themselves; managing financial numbers can certainly be intimidating—especially if you’re not well-versed in bookkeeping best practices. I encourage you, whether you are a current Clarity Finances client or a future one, to start investigating your company’s numbers. But before you begin—or, indeed, as you continue—be mindful of some frequent pitfalls.
Today, I’d like to alert you to some of the most common book-keeping mistakes and suggest ways to avoid them.
1.) Not sweating the small stuff: It’s easy to remember to keep the receipt for the $350 dollar plane ticket to last month’s Los Angelas tradeshow, but what about that new $30 printer cartridge? Many business owners throw out receipts for smaller purchases. Although it’s unlikely that the IRS is going to require specific substantiation for small sums, it’s important to keep these as documentation for any deductions you might claim when tax season rolls around.
2.) Going too Green: Here at Clarity Finances, of course we support the “Green movement.” Electronic record-keeping has made it easy to reduce paper waste, allowing business owners to keep track of their financial data through Cloud-based platforms or on their hard-drives. However, in the event of technical problems—hello power outages—hard-copy documentation is still advisable. A good, old fashioned paper trail is still the best option in the event of an IRS audit.
3.) Category Confusion: Employee compensation is one of the largest expenses for businesses of any size. To complicate matters, worker categorization is anything but straightforward. A business owner may hire a combination of payroll employees, independent contractors, and freelancers. It is important that one differentiates between Bob, whose health insurance is provided, and Rebecca who designs marketing collateral on a freelance basis. Straightening out these categories before April 15 will prevent any misfiling mistakes.
These common mistakes aren’t intended to discourage you. As I said, I am a huge supporter of client involvement in the bookkeeping process. Communication between the business owner and the bookkeeper is crucial for accurate account maintenance–which will be even easier now that you know the mistakes to avoid!