Businesses of all sizes – and at every tenure level – are at risk of making bookkeeping mistakes. Keeping the books and preventing blunders are a financial equalizer among organizations of all types. It’s just par for the course of doing business, though it’s one universally disliked.
For example, more than half of all business owners surveyed by TD Bank said they view bookkeeping as their most-loathed responsibility. Specifically, only 15 percent reported enjoyment from bookkeeping.
Though few are fans of the actual work involved in bookkeeping, startups, small businesses and solo entrepreneurs may be at an elevated risk of committing significant errors in managing such tasks. Given their lean staff, limited capital and learning curve, those who are newcomers to dotting their financial I’s and crossing their numerical T’s could be making blunders without realizing it.
So, just what are some of the biggest bookkeeping mistakes? In what ways might small businesses be guilty of some financial fumbles? Here, we explore a short list of the top five.
1. Mixed finances.
Business owners, new and veteran alike, sometimes blur the lines between personal and business finances. They blend expenses, pay bills out of both accounts and build a case for writing off a personal discretionary expenditure as a business deduction. Bookkeepers can help keep small businesses and entrepreneurs on target, on task and more accountable. Plus, bookkeepers can recommend apps and software to maximize and segment expense tracking.
2. Misclassifying employees.
There’s been much written in recent years about the IRS and Department of Labor cracking down on companies that classify contributors as independent contractors when, in reality, they are actually employees. The IRS offers guidance on what constitutes an employee or an independent contractor relationship. Though bookkeepers are not tax experts or Certified Tax Preparers, they are not uncommonly involved in work that would bring potential classification concerns to the fore. Some bookkeepers prepare tax forms 1099 and W-2, in addition to doing payroll tasks and coordinating payroll tax returns.
3. Missing deductions.
Though bookkeepers are not necessarily tax preparers and aren’t IRS-Certified Tax Preparers, through experience they may have developed an eye for applicable business deductions. These could include professional development classes, matched funds contributed to employees’ retirement savings accounts, home offices, hardware, supplies, repairs and more. This is one area where their know-how as finance generalists brings added value.
4. Absent oversight.
Small businesses so often do more with less, but this is an area where being agile and lean is not optimal. Failing to exert governance and maintain internal controls can cause finances to fall flat. This is especially possible in companies with only one staff person serving in a hybrid accounting, bookkeeping or finance role, or in an organization with one leader wearing multiple operational hats. Bookkeepers can serve as a strong spoke in the overall wheel of organizational financial accountability. They can initiate conversations about identified concerns, clarify and reinforce policies, help develop newer, better practices, and perform reviews of legacy data to spot gap and opportunities.
5. Open records.
Open records requests are what reporters file when seeking information for a news story, but your business’s finances and accounts should not strike a similar note. Bookkeepers can help business owners separate confidential data and protected information, removing it from general employee or public access. They can provide recommendations for safeguarding the books, a key to the integrity of business and the spirit of competition.
As you look to your business bookkeeping needs in 2017, which risks factors do you plan to reel in this year? Which common gaffes do you find yourself guilty of committing? Share all this and more with us on the BELAY Facebook page. Also, don’t forget to view our BELAY virtual bookkeeping services, too.