There are always “a million and one” things to do when you start a small business. All too often, the most important things get put off “until there is time.” Bookkeeping is one of these things. Knowing how to avoid small business bookkeeping mistakes is an integral part of small business success both in the startup phase and over the years. Let’s look at common bookkeeping mistakes, why they are problems, and what you can do to avoid them.
As you are scurrying around finding space to rent, setting up internet service, marketing your business, and everything else, it is really easy to put off the bookkeeping. At a minimum, you should be keeping all of your receipts somewhere safe for later reference. But, one of the worst bookkeeping mistakes is not starting it on day one of your business.
Many small business novices may believe that they won’t need to pull expenses together until tax time. There are several flaws to this reasoning. The first is that you may not know what expenses need to be tracked. Talking to a bookkeeper or accountant like Exigo Business Solutions in the Kansas City area will allow you to track the right expenses and not have to panic at tax time. As an example for a business startup, does your R & D work qualify for tax credits? As the top accounting firm in the Kansas City area, we deal with this sort of issue routinely. Find out upfront what you need to keep track of and let us help you set up the right system, software, and processes to do the job right from the very beginning. The best small business software is QuickBooks Desktop or QuickBooks Online. Both come in several versions. Contact us to find out which will be best for your business startup.
There is nothing wrong with working off an Excel spreadsheet when you are planning your business. But, as anyone who has worked in Excel knows, you can easily become buried in sheet after sheet of numbers. If you are really good at using Excel, you can link data from page to page, but Excel is not a database and does not have the sophistication needed to track and display all of the data that you need to run a going business. You need to invest in bookkeeping software and ideally have this running the day that you start up. What you choose should be scalable. For example, you can start with the most basic QuickBooks Desktop software and move up the line or over into QuickBooks Online as your business grows.
Just as you will quickly outgrow your Excel spreadsheet, you may also outgrow your bookkeeping software. Having scalable software is good but, even better, choose a software that integrates with sophisticated problem-solving programs like Microsoft Power BI, QBAR (QuickBooks Enterprise Advanced Reporting), or other “business intelligence” software. Feel free to contact us in this regard as there are typically very economical ways to start out and to scale up or integrate with other software as required.
It certainly is common to start out a small business with money out of your own pocket. But, it is really important from the very beginning to keep your business records and your personal finances separate. If you want to use the same bookkeeping software to keep track of both, that may be possible. But, you need to make sure not to mix the two. You don’t want to confuse the issue at tax time with which expenses you can deduct for business and which you cannot. And, if you send a mix of expenses to the tax preparer, you will be paying them, at their rate, to do the organizing that you should have done at the very beginning!
In regard to not paying the tax preparer to do your work for you, there are simple tasks such as entering your routine expenses and payments in chronological order. Don’t pay the tax guy at his rate to sort through bank statements because one seemed to be missing but was just out of order!
And, a last part of this issue is when you work from home. You need to designate your home office area and keep track of mortgage and utility costs so that you can allocate the proper fraction of those costs and use of space to business expenses.
There are things that you buy and things that you sell. Both involve invoices and payments. You need a system that handles this in an organized manner and will generate reports in real time. You want to make sure to pay on time to maintain good relations with your suppliers. And, you want to get paid for your work in a timely manner. A good bookkeeping software like QuickBooks Online even lets you edit and make your sales invoices better as they not only help you collect money owed but also represent your business.
We mentioned that you need scalable bookkeeping software that is as smart as you need it to be. This is because there is typically a wealth of information in your financial records. To use it, you need the sort of custom reports that QuickBooks can supply or that you can get with one of the business intelligence applications. From knowing which work really is profitable to that which is losing you money, you can find answers when your reporting is set up properly. The hidden costs that routinely sap the strength of any small business can be spotted an dealt with if you know how to set up the reports correctly. And, if you would like a little help, contact us at Exigo Business Solutions in the Kansas City area.