Common Bookkeeping Mistakes You May Be Making

When running a small business, it's easy to make bookkeeping mistakes if you don't have an accounting background. But sloppy bookkeeping can cost you a lot in the long run with IRS issues, profit losses, and business growth challenges. Avoid common bookkeeping pitfalls with these tips for recording income and expenses accurately or outsource your needs to a bookkeeping service.

Mixing Personal and Business Expenses

One of the most common bookkeeping mistakes is mixing personal and business expenses. While it may seem easier to pay everything from one account, it muddies the waters come tax time. Keep business credit cards and bank accounts separate from your personal accounts. Review statements monthly to ensure only business expenses hit your business accounts. Transfer any personal expenses to reimburse yourself.

Not Tracking Mileage

If you use a personal vehicle for business, be sure to track mileage. The IRS allows a standard mileage deduction of 58 cents per mile for 2023. This can be a huge tax deduction. You should log each business trip, date, destination, purpose, and round trip miles. Apps like MileIQ can automate mileage tracking. Just remember to keep diligent records in case of an audit.

Sloppy Invoicing and Payments

Disorganization with invoices and client payments can damage your revenue. Create a system to track outstanding invoices and follow up on any that are late. Send friendly payment reminders to avoid awkward conversations. For payments, log each one with details like date received, client, amount, and job. Deposit payments promptly to avoid cash flow issues.

Neglecting Backup and Software Updates

What would happen if your computer crashed and you lost all accounting records? Regularly backing up your bookkeeping software and company data is critical. Store backups offsite or in the cloud. Set calendar reminders to do monthly or weekly backups. Also, you shouldn't ignore software updates, staying current improves security and performance.

According to The Business Research Company, the global market for accounting services has a valuation of $868 billion. This is because attempting DIY bookkeeping without proper accounting knowledge can become problematic. Mistakes like mishandling expenses, misclassifying income and assets, and misunderstanding tax deductions can lead to IRS audits and penalties. If you're juggling the books yourself, outsourcing to a bookkeeping service may help you avoid these mistakes. Give us a call at Knightsbridge, where we can help you get started!