Bookkeeping is crucial for businesses, whether large or small. However, many small and medium business owners often wear multiple hats, including handling their own accounting. This juggling act can lead to mistakes that may seem insignificant at first but can cause problems down the road. Let’s explore these common mistakes and see how professional bookkeeping services can help you steer clear of them.
1. Confusing the difference between cash flow and profit
It’s important for small businesses to distinguish between cash flow and profits, as they can exhibit different dynamics.
A business may experience positive cash flow in the short term yet lack profitability, while conversely, it might face temporary negative cash flow but ultimately prove profitable in the long run.
A good example of this is when businesses make upfront payments to suppliers before receiving payments from their customers.
It is important to maintain a clear understanding of your business’s financial health at all times as a lack of awareness regarding cash flow and profit stands as one of the primary causes of business failure.
2. Using a Single Account for Personal and Business Expenses
Starting a business using your personal bank account or credit card may be common, but it’s advisable to maintain a clear separation between personal and business finances.
Opening a dedicated business account ensures you don’t miss out on tax deductions and helps you avoid mixing business and personal expenses.
A bookkeeper can assist you in making this transition.
3. Overlooking Small Purchases
Small expenses like office supplies or milk and coffee for the office may not seem significant individually, but they can add up.
Keeping track of these purchases is essential to maximize tax deductions and maintain a clear record for potential audits.
As your business grows, a bookkeeper can help you organize and categorize these expenses effectively.
4. Neglecting Data Backups
While going paperless and using cloud-based accounting software can be efficient, technical issues can occur. A simple error can lead to critical data loss.
To mitigate this risk, maintain physical records of your financial transactions or create multiple digital backups of your online bookkeeping.
5. Failing to Reconcile Regularly
Regular account reconciliation involves comparing your monthly bank statement to your financial records.
This process helps you determine your available cash and spot any errors made by the bank. Regular reconciliation provides valuable insights into your business’s financial health and enables better expense planning.
Working alongside a bookkeeper who can regularly reconcile and update your financial data is a wise decision.
Phu & Co Financial Bookkeeping Services Can Help
Getting your bookkeeping right from the start is crucial to avoid costly mistakes and potential penalties from the ATO.
At Phu & Co Financial, our professional bookkeepers are here to help you avoid these common pitfalls.
Our Bookkeeping Services are designed to keep your financial records in order and compliant.
Explore our Bookkeeping Services to ensure your business stays on the right financial track.
