1. Not Keeping Expense Receipts
While the IRS doesn’t require you to keep most receipts under $75, it’s crucial for small business owners to maintain thorough records as backup documentation for tax deductions.
2. Improperly Classifying Employees
Misclassifying employees as contractors can lead to significant tax penalties and legal issues. Ensure you correctly distinguish between employees and contractors to avoid these consequences.
3. Delaying Bookkeeping Tasks
Failing to keep up with your payables and receivables promptly can lead to disorganized books and increased stress when deadlines approach. Timely bookkeeping is essential to maintain accuracy and reduce errors.
4. Neglecting to Reconcile Your Books
Regularly comparing your books with bank statements helps identify errors early and ensures your records match your spending. This step is vital for accurate financial management and understanding your cash flow.
5. Poor Cash Management
If your business uses petty cash, assign a dedicated person to manage and track it. Proper cash management prevents theft, abuse, and potential tax issues down the line.
6. Improperly Recording Transactions
Incorrectly categorizing transactions can disrupt your financial records, making it difficult to balance your books. Accurate recording is essential for reliable financial statements and tax reporting.
7. Not Establishing Reimbursable Expense Guidelines
Without clear guidelines for reimbursable expenses, employees may struggle to know what can be written off as a business expense. Establishing these rules helps maintain consistency and compliance.
8. Neglecting Critical Financial Reports
Regularly generating financial reports, such as income statements and profit and loss statements, provides a clear picture of your business’s financial health. These reports are essential for informed decision-making and financial planning.
9. Misunderstanding Cash vs. Accrual Methods
Knowing the difference between cash and accrual accounting methods is crucial. Accrual accounting matches revenue and expenses, while cash accounting records revenues when received and expenses when paid.
10. Failing to Account for Sales Tax
Properly recording and separating sales tax at each point of sale is essential to avoid inflated sales figures and incorrect tax filings.
11. Lacking Backup Systems
Ensure you back up your bookkeeping system to prevent data loss due to technological failures. Regular backups protect your financial records from unexpected issues
TQ Group offers comprehensive bookkeeping services tailored to small businesses and self-employed individuals. Our experts can help organize employee records, track account activity, generate reports, and automate processes, ensuring accurate and organized financial records.
If you’re starting a new business or looking to improve your existing bookkeeping practices, adopting the right strategies is key. Identify trouble areas using the red flags mentioned above, and team up with TQ Group’s bookkeeping professionals to implement compliant and efficient bookkeeping practices.
Forecast Needs and Evaluate Performance: Regularly assess your business’s financial needs and performance.
Track Financial Information: Maintain accurate records for external stakeholders, including customers, investors, lenders, and the IRS.
Make Timely Payments: Ensure timely payments to contractors, vendors, creditors, and others.
Maintain Reports: Keep year-over-year reports to track your business’s performance.
Stay Tax Compliant: Ensure your business complies with all tax regulations.
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