| As tax season approaches, many small business | | | | reconcile your bank accounts at the end of each |
| accountants, CPAs and bookkeepers find their anxiety | | | | month when the bank statement arrives. |
| levels increasing. | | | | Furthermore, if you hold other valuable assets like |
| In only a few short weeks, these accountants know | | | | inventory or investments, periodically you should |
| they'll see silly bookkeeping errors in many of their | | | | compare what the accounting system says to an |
| small business clients' books--errors that have meant | | | | actual physical count or statements from an external |
| the business owners have paid too little or too much in | | | | source. |
| taxes. Errors that mean the business owner hasn't | | | | Regularly performing reality checks on key accounts |
| really been able to effectively manage the finances of | | | | (especially cash) cleans up all sort of easy-to-miss |
| the business. | | | | errors. |
| Fortunately, these common bookkeeping blunders are | | | | Bookkeeping Blunder #4: Financial Complexity Beyond |
| easy enough to fix--if you know what they are and if | | | | Bookkeeping Skill Levels |
| you know the simple steps you can take to avoid | | | | One common bookkeeping blunder makes for |
| making them. | | | | awkward conversations between accountants and |
| Bookkeeping Blunder #1: Pretending No Accounting | | | | their small business clients. But you deserve to know |
| System is Needed | | | | what the blunder is... |
| The first--and perhaps most serious blunder--is | | | | Unfortunately, accountants regularly encounter |
| especially common with new business owners. The | | | | business clients with finances that are too complex for |
| neophyte business owner sometimes pretends he or | | | | their bookkeepers. And that's a huge problem. If the |
| she can make do without a real accounting system. | | | | business gets too complicated for the in-house |
| In place of a real bookkeeping system--something like | | | | bookkeeper (often the owner's spouse), the |
| Microsoft Small Business Accounting or Intuit's | | | | accounting system slowly becomes more and more |
| QuickBooks--the business owner simply collects | | | | unreliable. And this accounting unreliability usually means |
| receipts in a box or keeps a check register by hand. | | | | the business will shortly get into big trouble. (How can |
| Or maybe the business creates the illusion of an | | | | someone successfully manage a business if they don't |
| accounting system by using something like Microsoft | | | | know when they're making or losing money or how |
| Excel to, at least, add up some of the numbers. | | | | much cash they have in the bank?) |
| Unfortunately, the "no accounting system" doesn't | | | | By the way, you'll easily be able to determine if the |
| work. Before you have your tax return prepared, | | | | accountant or bookkeeper is overwhelmed. She will be |
| someone (perhaps your tax preparer) will need to | | | | falling further and further behind on the data entry. She |
| cobble together some sort of makeshift system. And | | | | will be producing reports that make less and less |
| that's too bad, really. Such a system will allow your tax | | | | sense. And, often items, the profit and loss statement |
| return to be prepared. But such a system almost | | | | or the balance sheet will include a suspicious catch-all |
| surely won't capture all your tax deductions. And the | | | | account named something like , "Ask the Accountant," |
| information that this crude "system" provides will be | | | | "Suspense," or "Intercompany Transactions" that keeps |
| too late to help you better run your business. | | | | increasing in size. |
| Bookkeeping Blunder #2: Slow Entry of Accounting | | | | Only two true solutions exist for the "too much |
| Data | | | | complexity" problem. You can simplify the business |
| Another common blunder? Taking too long to enter | | | | (probably the best idea). Or you can find a more |
| the accounting data into your system. Which is | | | | experienced (and probably more costly) bookkeeper |
| surprising, in a way... | | | | or accountant. |
| You would think that people who've gone to the | | | | Bookkeeping Blunder #5: Co-mingling Personal and |
| modest effort and expense of having a real | | | | Business Assets and Liabilities |
| accounting system set up would keep the system up | | | | One final bookkeeping blunder should be mentioned |
| to date. But often they don't. | | | | given the approaching tax season. |
| The problem with pokey data entry is that any useful | | | | Many small businesses don't clearly separate their |
| insights that come from your accounting system, come | | | | business finances from their personal finances. For |
| too late. | | | | example, the businesses may use a single checking |
| Whoever is doing your accounting should keep up to | | | | account for both personal and business banking. The |
| date on the data entry. Within a few days of some | | | | business may regularly borrow personally to pay for |
| transaction actually occurring, the accounting system | | | | business expenditures--and vice versa. And the |
| should reflect the activity. | | | | business owner may too frequently mislabel personal |
| Bookkeeping Blunder #3: Skipping Account Reality | | | | expenses as business deductions. |
| Checks | | | | Sadly, rampant co-mingling of finances makes financial |
| An important yet simple point: Of course people make | | | | records and books pretty much useless for tax |
| errors in using their accounting systems. But the nature | | | | preparation and for use in managing the business's |
| of double-entry bookkeeping means that it's usually | | | | finances. |
| relatively easy to catch errors. How? You need to | | | | |