Small business accounting is an area in which Murphy’s Law holds true: if something can go wrong, it will probably will. Business owners and entrepreneurs who fail to take the necessary precautions to safeguard their data from disaster will get left in the dust by their competitors. From device failure and cyber attacks to server malfunctions and more, there are a number of elements that can lead to data loss. This is why it’s essential that small business owners create regular backups of their financial data.
Overlooking Small Transactions
Whether it’s a $10,000 or $1.00 transaction, you should get into the habit of recording ALL transactions. Turning a blind eye to small transactions will throw off your entire balance, forcing you to go back and identify the missing puzzle pieces. Of course, a simple way to keep track of your business-related expenses — big and small — is to use a single business credit card, on which you can place all of your expenses. As long as you use a single credit or debit card, all of your expenses will be neatly placed in monthly statements for your convenience.
Mixing Personal and Business Expenses
Of course, we can’t talk about common small business accounting mistakes without mentioning the mixing of personal and business-related expenses. Sure, it’s probably easier and more convenient to use your personal credit card to make a business-related purchase, but this is a serious mistake that should be avoided at all costs. Mixing your personal and business-related expenses will only make your taxes that much more difficult come April (or whenever else you plan to file).
Throwing Away Receipts
The golden rule of small business accounting is to keep any and all receipts. Even if you have a statement featuring all of your business-related expenses, you should still hang on to the receipts. If the IRS wants to audit you, you’ll need more than just a statement of your expenses; you’ll need actual receipts showing the product/service and other information about the purchase. So, set aside a file specifically for receipts. You can even go one step further by scanning your receipts to create digital backup copies.
What small business accounting mistakes are you guilty of making? Let us know in the comments section below!