You’re motivated, savvy, on the move… and incredibly time-starved. Between growing your client base and seeking new investors, it’s common for day-to-day tasks to fall to the wayside. Just don’t let bookkeeping be one of them. Small bookkeeping errors add up to a major landslide. A few missed financial transactions here and there can throw off entire financial reports, or even lead to tax implications. Here are seven common bookkeeping mistakes you can avoid with the right bookkeeping help.
7 of the most common bookkeeping mistakes and how to avoid them
Businesses of all sizes experience bookkeeping errors. From undocumented expenses to unfiled taxes, accounting mistakes come in all shapes and sizes. You could face not only unexpected losses, but government penalties if you fall into one of these seven avoidable traps.
1. Mixing business and personal
The best financial practice for any business — even a small- or medium-size organisation — is to separate personal and business transactions. When you’re trying to calculate tax deductions and reconcile your end-of-year reports later on, blended finances are a headache. You will have less to untangle later if you use a designated business account now.
2. Using accounting software incorrectly
Popular accounting software programs can do a lot of heavy lifting. But they are still subject to human error. In other words: You can’t skip taking the tutorial. Do an annual check-in with your accounting software and ask yourself: Am I using the most up-to-date version of this software? Can this software handle the scale of my bookkeeping needs? Is this software updated with the latest tax rates?
3. Falling behind in bookkeeping
Another of the most common bookkeeping mistakes is simply falling behind. Even a month of missed reports stops you from accurately understanding your cash flow and current debts. Keeping a daily general ledger the right way means staying on top of every single transaction that comes in and out of your accounts.
4. Tossing your records too early
Did you know the government requires your business to keep certain financial records for a set period of time? It turns out you can’t just send everything to the shredder when tax time is over for the year. In Australia, you should keep written evidence of your financial reports for five years after you lodge your tax return. In New Zealand, financial records should be kept on hand for seven years after you lodge the year’s taxes. This includes everything from invoices and receipts to wage books and vehicle log books.
5. Incorrectly paying employees
If you have a full-time employee classified as a casual worker, the mistake could cost you thousands. You may be held responsible for back wages plus interest, and face legal penalties. What might seem like a small formality is in fact a major decision. Familiarise yourself with employee classification in Australia and New Zealand to avoid this costly mistake.
6. Inaccurately reporting payroll and sales tax
A major part of keeping accurate business finances is paying the proper tax rate. Since payroll taxes vary across states and territories, you may need some help sorting out how to set up your payroll system the right way. In this case, it is always better to triple check than risk a hefty penalty at the end of the year.
You must also make sure your point-of-sale systems are set up with the right sales tax (10% in most cases in Australia and 15% for most goods and services in New Zealand). Rest assured, if you don’t pay enough in taxes now, you will end up paying for it later.
7. Hiring an inexperienced bookkeeper
Many of the above errors trace back to one common misstep: hiring a bookkeeper who is not able to keep up with your evolving bookkeeping needs. Someone with more experience can manage financial reports, prepare an accurate balance sheet, and stay on top of tax requirements. If you keep running into inaccuracies, it may be time to enlist a more robust bookkeeping team to round out your back office and keep things in line.
If you’re a growing business in need of additional help, enlisting an outsource bookkeeping service may be the answer. Visory can help your organisation avoid these mistakes. You will be connected with a team of experts who know your industry inside and out, and you will have 24/7 access to your financial reports. Contact Visory today to learn more about our suite of account services that support your back office and help you avoid common bookkeeping errors.