Small-business owners often make bookkeeping mistakes in their early years of operation, primarily due to a lack of knowledge regarding proper accounting procedures. While you may not have the time, money, or desire to become a certified accountant, it is still possible to avoid a few key pitfalls that can impact your company’s bottom line.
The following are 10 of the most common bookkeeping mistakes made by small-business owners.
While money management is certainly an important task, it’s not necessarily crucial for you to be the one to do it. In fact, if you don’t have a fairly strong background in accounting and business tax law, it’s probably advisable that you don’t handle your own bookkeeping. Delegating this task to a professional will help you find errors while freeing you up to work on your business.
While pinching pennies can certainly save your business money, there is a point where frugality can actually cost you money. In many cases, the adage “you get what you pay for” rings true. Spend a little extra to get a quality accountant rather than the cheapest bookkeeper available.
In addition, do your research before spending money on other business services and items that have a shelf life of more than a few months. When purchasing items like office furniture, equipment, or software, a good rule of thumb to follow is to select a moderately priced item and purchase it when it’s on sale.
If you visit your local office supply store and pick up $250 worth of printer paper and other items that have to be replenished frequently, it’s perfectly acceptable to log the purchase under “office supplies” and write it off.
On the other hand, if you happen to pick up a new $250 printer, the purchase needs to be logged differently. It’s not the amount that matters, it’s the useful life of the items you purchased. A printer will definitely be used longer than a few months, so add it on the books as an asset and depreciate it over the estimated useful life of the item.
For a personal tax return, individuals are allowed to write off donations given to charitable organizations. Businesses, however, are not afforded the same deduction. Because businesses are often given recognition, advertising space, or some other concession in return for their donations, they are not truly considered “charity.” If you make this bookkeeping mistake, the Internal Revenue Service will probably make sure you don’t do it twice.