Here are a few mistakes that many small business owners make and how to avoid them.
Failing to keep all your receipts and expense vouchers. File all your receipts and your expense records, however small, in a file. Sort them by date so they are easy to locate.
Having an accurate record of all receipts will assure the IRS that you are making legitimate claims.
Failing to use an accounting and inventory software package. Many of these packages are available on the market today. This is software that can reconcile your bank statements as well as keep track of your sales, and outstanding payables and receivables and your bank and cash positions. It can also keep track of your inventory and remind you to place orders for depletions.
Today’s tax and accounting software packages have so many features and are so affordable that it’s a big mistake not to purchase and use them fully. They can help you to save time and money – and maintain computerized records of all transactions.
If you lack the confidence to use the software, then hire a bookkeeper who is conversant with computers.
Failure to use a logical accounting system. Use a proper accounting system to keep track of your payments and receipts. Issue all your checks in the correct sequence and do the same with sales receipts. This will make it easy for you – and the IRS, if necessary, to track all your accounting data.
Do not maintain your accounts in such a way that the IRS will have doubts about your business. The IRS will be much happier if you have maintained your accounts in such a way that your entries can be traced right to the source.
That will leave no doubt in their mind as to the genuineness of your entries – and your business as a whole.
Failure to use separate credit cards for business and personal expenses. Use one set of credit cards for business-related expenses, such as those related to travel and purchases – and another set to make personal purchases such as eating out with your family. That way, you can check your credit card statements easily and file those related to your business in your office files.
Set up separate bank accounts in the same way. Issue checks related to your business only from your business account and make all personal payments from your personal account. Follow this system strictly to avoid any confusion come tax time.
- Failure to keep track of cash. Keep a keen eye on your cash and maintain all records related to income or expenses in cash. Also keep track of your petty cash. A voucher or bill with the proper signature of the person related to it should accompany each and every entry. That way, you and the IRS can track that entry if the need should arise.
If you use these tips, you will avoid the pitfalls that many small business owners fall into in the maintenance of their records. When it comes to taxes and bookkeeping, an ounce of prevention is worth a pound of cure!