There is no time like the present to rectify these business bookkeeping matters. They could save you money in the long run.
Now that we are all well recovered from tax filing back in April, it makes sense to take a step back and get a more big-picture view of your company’s bookkeeping practices. These things are best considered when not under the gun to get materials in to the IRS. Certain adjustments to the way you document your business activity can result in not only better perspective, but money saved, as well.
We recently gave you some tips on organizing tax documents.
But there is definitely something to be said for sitting down with your accountant when crunch time is over — and you both aren’t exchanging documents at a frenzied pace — and just taking a deep breath.
Here are a few of the most common bookkeeping issues we see at Kerby Accounting & Business Solutions. Use this relatively calm time in the accounting calendar to take a pro-active look at how you are keeping track of things and how it is all adding up.
We see this problem with companies in terms of how they categorize 1) their employees and 2) their expenses. Often a business will hire someone to handle their books who does not have an effective level of knowledge about accounting. It may be seen as a money-saving strategy, but often backfires.
Companies with a combination of employees and independent contractors need to have them classified correctly to avoid overpaying in taxes. If income and expenses are put in the wrong column, meanwhile, you can’t accurately measure your company’s profitability. That is the core of why you are in business. You need to know that information; it’s the basis for your decisions and strategy, after all.
Not having separate accounts for your business and personal money is a problem. If that’s you, we aren’t judging, just saying you need separate accounts as soon as possible in case of an audit. Within those accounts, meanwhile, ensure you or someone is reconciling account activity with your monthly bank statements. Otherwise, you’ll be blind to potential issues that may crop up.
No petty cash or reimbursable-expense systems
It doesn’t seem like a big deal as it’s just petty cash. But you’d be surprised how many business owners have trouble keeping track of this money and where it goes.
We recommend buying a lock box at your closest office-supply store. Keep the money, receipts and documentation of the expenses in there and train employees how to note their name, date and purchase — stressing the importance of keeping and filing receipts in the lock box as well.
Businesses also have to have a way to keep track of work expenses purchased with personal money that need to be reimbursed by the company. Small-business owners are especially vulnerable to this scenario — using their personal account to buy something for the company and then forgetting to pay themselves back. A tracking system needs to be established. Otherwise, your company isn’t making as much money as you think it is — you’ve merely forgotten to pay back some of its debts — to yourself.
We suggest taking a look at your business’ record-keeping and bookkeeping practices — especially as they relate to categorizing workers and expenses; reconciling accounts; and handling petty cash and reimbursable expenditures. Doing so will give you a better view of your company’s performance, and mid-year is a great time to delve in, summoning the help of a professional accountant.