Although most small business owners and subcontractors recognise the importance of carefully monitoring their finances, few have the time to spend reviewing their numbers. After all, for subcontractors and small business owners, if you are not actually working, you are not making money.
However, not keeping a close eye on your income and expenses can be very costly for a small business.
Here are five of the most common bookkeeping pitfalls, and some simple tips for getting back on track.
- Mixing business and personal
All too often, business owners adopt a “buy now, sort later” approach to expenses, using the same credit card for personal and business purchases. At the end of the month, they’re left poring over statements, trying to sort things out. Mixing business and personal expenses costs extra hours of bookkeeping each month, and muddies your overall financial picture.
Avoid this pitfall by using a separate credit card and bank account for your business and being disciplined about keeping those expenses separate.
- Neglecting to track reimbursable expenses
Receipt tracking is a necessary part of your business. You need to keep track of receipts to identify transactions, understand spending patterns and effectively manage your company’s finances. And, if you want to claim deductions at tax time, you’ll need to retain receipts along with your other tax records.
But far too many business owners take a haphazard approach to collecting and organizing receipts, especially while on the go. Get the deductions you deserve and simplify your tax prep by using an expense tracking app. Options like Expensify and BizXpenseTracker can record mileage, billable hours, and other expenses, as well as generate reports. Plus, many of these apps sync seamlessly with your business bank account and accounting software.
- Not taking advantage of technology
Are you still relying on manual accounting methods? While basic spreadsheet tools can get the job done, they leave the door wide open for human error. What’s more, manual methods simply can’t match the technological benefits offered by accounting software like MYOB, QuickBooks or Xero. These systems track invoicing, link with your credit card and business bank accounts through ‘bank feeds’, organize expenses and generate informative financial reports.
- Not keeping accounts up to date
Let’s be frank. Most business owners don’t look forward to that weekly appointment with “the books.” In fact, many business owners cite bookkeeping as their most dreaded responsibility and will find a host of reasons to avoid it.
- Not chasing money owed
Whether it’s a delay in sending invoices out or failing to follow them up when they remain unpaid, the longer they go unpaid the higher the chance of them turning into bad debts. So ensure that you either make the time to follow up overdue invoices or engage a bookkeeper to do it for you so you can focus on your business.