You are not alone. Common mistakes are often made by small business owners. Home-based business owners are required to put a lot of dedication and planning into their operations, which leaves very little time for their accounting systems. Often most home-based businesses will make common accounting mistakes – here is a list of the top five most common mistakes and some tips for avoiding them.
1. Forgetting to regularly put aside enough money in a systematic fashion for estimated taxes. (Income tax, HST, Payroll)
2. Not keeping complete expense receipts for tax purposes. This can be costly and can make tax-time calculations very difficult. There are a few ways to avoid this problem:
Consider making all your business transactions on a charge card that is set up solely for that purpose. Your monthly account statement for the card would serve as an accurate accounting, providing that you list the dollar amounts and types of purchases for your own record. Some credit card companies even offer a special credit card for small businesses. For a more disciplined approach, consider writing checks for your business purchases. Keep the receipts in the checkbook so that it will be very noticeable when you arrive home, where you can put them all together in a folder reserved for the purpose.
3. Not recording the source of checks deposited. This becomes an even bigger problem if you’re taking out business loans, because at the end of the year it becomes hard to differentiate which deposits were payments received and which were for loans. Simply write in your checkbook the source of each deposit, making note of the payer and the check number for each check.
4. Many home-based businesses do not have adequate systems in place for billing customers, and for keeping records of overdue payments. These two activities are crucial to a business, so you’ll need to set up an accurate method with timeless of exactly whom you’ve billed, and when their payments are overdue.
5. Surprisingly many home-based entrepreneurs don’t have a system that allows them to easily and accurately keep track of billable hours spent working for customers. This can be especially tedious for a small business, since it usually results in having to estimate the time spent on projects, which are often low. In order to prevent this problem, set up a reliable system that allows you to easily record the time spent on each job – the most important factor being you making a point of recording the exact amount of time spent on each job.
Perhaps the most advisable system is to work with a bookkeeper or accountant who is experienced with helping small businesses. Either can help you establish systematic procedures, and can suggest appropriate software and other tools that will help make your life easier.