In this article and my next one, I will explore 10 common bookkeeping mistakes that small businesses typically make. Here are 5 of them:
1. NOT SEPARATING YOUR BUSINESS & PERSONAL FINANCES
Business owners often pay for expenses out of their personal funds and forget about them. Failure to account for these reimbursable expenses can result in lost money. Business and personal finances should always be kept separate. If you don’t have a business bank account, open one, then ensure that all business income and expenditure goes through that account. From time to time, business owners have to loan money to their business, especially at month-end in order to ensure that money is available for salaries. By transferring this money from your personal account into your business account, you enable your Bookkeeper to keep track of the profitability of your business. They will also be able to record how much you have loaned to your business in order that you know how much the business must repay you at a later stage. You will also be able to see how much salary the business can afford to pay you.
It’s a fact. SARS is conducting more and more VAT audits – on businesses of all sizes. So if you are not complying correctly with the complicated VAT regulations, you could find yourself being hit with heavy penalties and interest. Another drawback is that the incorrect handling of the VAT in your books may result in overstated / understated profits and over-payments to SARS.
3. POOR MANAGEMENT OF YOUR PETTY CASH
Petty cash is a small amount of money that can be used to pay for small business expenses, such as stamps, tea, coffee and milk. Businesses often operate with petty cash, but have little knowledge of how to track it. Your business needs a system which allows you to track the movement of your petty cash. Click here for more information.
4. NOT BACKING-UP YOUR BOOKKEEPING RECORDS
Just as it is important to regularly backup your email, Word and Excel files, it is important to backup your bookkeeping files (e.g. Pastel or QuickBooks company). Not doing so runs the risk that a computer problem will result in months (possibly years) of bookkeeping information being lost which is a major problem given that SARS requires you to keep your financial records for several years.
5. NOT RECONCILING YOUR BANK ACCOUNT
Each month, your business’s books must be reconciled (double checked) with your business’s bank statement. Reconciling on a monthly basis ensures that errors and omissions are corrected quickly, before they become significant problems.
Be sure to keep an eye open for my next article in which I will explain another 5 common bookkeeping mistakes that small businesses typically make.