Let’s face it, you didn’t start a business because you wanted to become a bookkeeper. You started it to help others better themselves, and by doing so—you’ve been able to bring financial and emotional happiness to your life. But nothing will take away those warm and fuzzy feelings quicker, than pouring through 70,000 pages of federal tax code, missing out on deductions, or risking IRS audits.
Knowing how to properly manage your books can reduce a lot of stress and increase workflow productivity. Here are 6 common bookkeeping pitfalls and how you can avoid them.
- Unreconciled transactions
Do you have unreconciled transactions on your books? Your books cannot be complete until all transactions that occurred in 2015 are categorized correctly. Solution? Think and act chronologically.
- Loan payments
Do you have loan payments on your books? You may not have accounted for the principle and interest portions of the payments correctly. If you have categorized the whole payment to a single expense, your books are probably incorrect. Make sure you always account for the principle, as well as interest.
- The infamous “shoe box”
Simply put, if your receipts are sitting in a box somewhere, then you haven’t even begun to keep your books. There is really no way to reconcile this pitfall except for to suggest that business owners abandon this practice and implement correct accounting principles from the beginning. Trust us when we say, it’s a lot easier to start documenting your transactions from the start, than to go through a year of coffee stained receipts to try and categorize transactions you may or may not remember.
- Inventory count
Your books may have inaccurate values for inventory and Cost of Goods. This can be due to a miscount or, just as common, theft. This is especially important for business owners who have a physical product. Always stay current on inventory, andDecember 31 is always a good date to do a proper inventory check. This is a crucial step as you aim to properly keep your books.
- Payroll
Like a bicycle wheel, you’re payroll needs truing. Such maintenance requires that your income statement show payroll at gross but without a manual adjustment to the standard bank feeds, this account is probably only shown at net payroll.
- Accrual basis bookkeeping
There are numerous accounts that need to be manually updated at year-end. This task is often far too difficult if you do not have an accounting background. It’s best to discuss this process with a CPA or accountant.
Final Thoughts
If you find yourself falling victim to any of these pitfalls, there’s no need to panic. Business owners have plenty of options to catch up before the big tax day. The most important thing is to be aware of proper bookkeeping techniques as well as common pitfalls so that you can avoid losing precious time and money.
But if you’re like hundreds of other business owners who figure that at the end of the day doing your own accounting just isn’t worth the headache—then consider using Bookly’s cloud-based bookkeeping service. Once you plug in your business accounts, at just $99 a month and we do all of the work for you. Heck, we’ll even give you the first month free if you mention this article to one of our bookkeeping specialists.