Five most common book keeping mistake Jamaican small businesses make – Business 101

Statistically many small businesses fail within the first five years. One of the main cause is poor financial management. For the small business, owner bookkeeping is often a chore. It is often overlooked in the scheme of running a business especially if it is a one man show.Bookkeeping is your biggest weapon when it comes to monitoring, running and growing your business.

What is bookkeeping?

Bookkeeping is the activity or occupation of keeping records of the financial affairs of a business.

What are the most common bookkeeping mistakes?

No bookkeeping system
The biggest mistake made early on in a small business is not using a proper bookkeeping system. The business owner usually places the paperwork in a box or draw and expenses. It is easy to lose receipts or forget about small expenses. Unfortunately, before your tax returns can be done, someone has to draw up reports by sorting out this makeshift system. Maintaining accurate records on a monthly basis, along with a proper filing system, saves you time and money on your taxes. It can also provide the necessary documentation in the event that you are audited. With these reports only available at such a late stage, you cannot make fully-informed decisions in running your business in the best possible manner.

SEPARATE BANK ACCOUNTS
It’s critical that personal and business finances be kept separate at all times, regardless of size. If you are audited, you will need to provide complete records of business-related activities, separate from your personal expenses.

SALES TAX
With many businesses not accounting correctly for sales tax is a common error in bookkeeping. Oversight in collection and reporting of sales taxes can result in significant fines and penalties. Incorrect data entry may result in a higher total sales amount and over-stated sales taxes due.

COMMUNICATION WITH YOUR BOOKKEEPER
Keep your bookkeeper informed of finances. If you get a loan, provide the documentation. If you buy equipment, provide the documentation. If you take money from the petty cash box to go out to lunch, provide the documentation. A bookkeeper needs to know where the money goes, in order to record the information correctly.

FILING
Establish, and use, a filing system for all paperwork. Establish a daily or weekly filing schedule.

DRAWINGS
Many business owners draw money out of the company in addition to their regular pay. Owners also often pay for personal items with their business accounts. These transactions are sometimes recorded as expenses, which again produce inaccurate financial statements. These should be set up in an equity account called Owners Drawings. If there are multiple owners, create an account for each one. Record all owner transactions into this account – owner contributions, owner drawings and personal transactions. Your accountant will thank you and you won’t be affecting the profit and loss statement.

REIMBURSABLE EXPENSES
Many small business owners pay for expenses out of their personal funds. Failure to account for these reimbursable expenses can result in lost money and lost tax deductions.

NO BACK-UPS
A lot of persons relies heavily on technology, without giving the  The heavy dependence on technology brings with it the chance that something could happen to your data. Data needs to be backed-up, and keep in different locations, to avoid potential losses. This is even more important if you are operating in a paperless environment.

 

 

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