Bookkeeping Mistakes A Start-Up Should Avoid

The process of bookkeeping is a lot to take on for yourself, especially when you are running a business. Minor errors would have a major impact on the organization. Thus, doing the books yourself with having an inexperienced bookkeeper would be a grave mistake. Not documenting a single transaction would lead to instantaneous effects on your bottom line. Thus, you need to ensure you hire a seasoned professional who can take care of your books meticulously as per industry requirements thus saving you money and time.

Timely collection of payments is crucial for any company, but particularly for start-ups, it is a non-negotiable to maintain financial health. The delays in payment collection would be disastrous for the cash flow and may even result in bad debt. It is also important that the bills produced is accurate and errors in these should not lead to missed collections. If missing out on due dates, delays in payment collections and errors in accounts handling is usual at your start-up, it is time to consider getting professional help.

In the hopes of saving money, a lot of small businesses will neglect having proper systems to ensure books are in good shape. This will however in a long term cost them more. It is important to get books audited from time to time and ensure that all the records are maintained accurately. If you are a start-up that puts maintaining your books well a priority by investing sufficient time and resources in this, you have an edge to be successful.

Using the same bank accounts for both personal and business expenses would lead to not just confusion but could also be faced with legal complications. In any case, if you have to use your business accounts for a personal transaction, a note of it has to be made immediately. Maintaining separate accounts will give you clarity on where your revenue is coming from and where exactly you’re spending without mix-ups.

As a business in a specific industry, you may be eligible for specific tax breaks. Various tax deductions come into play in various situations. Being aware of these tax deductions thus documenting and reporting them would result in lower tax burdens and lower your expenses.

It is important to understand the difference between a personal and a professional account. While your business is separate from you, it’s still part of your life, and sometimes the lines between the two can get blurred. When this happens, you can run into some problems—like when you use your corporate account for personal expenses or vice versa. Personal expenses should not be deducted from business profits. The annual tax return must be filed by any business regardless of the setup. When you pay for personal needs through a business account, you will have to pay tax penalties. Using a corporate account for personal money is considered disguised remuneration and is subject to payroll taxes and possibly interest. What happens thus is lower investments and thus lower growth.

Single-entry bookkeeping can only be used by small firms with low volumes of transactions. Single-entry bookkeeping doesn’t account for payables, inventory and receivables. Without these, it isn’t possible to prepare balance sheets and income statements which are particularly required for public enterprises. Single-entry bookkeeping also faces limitations when it comes to tracking assets and liabilities.

Cash-based accounting records a transaction only when the payment is made or received. Accrual-based accounting on the other hand accounts for all transactions once an exchange has been made regardless of if the corresponding payment for the same has been collected or given. For larger firms, often transactions are made on a credit basis and hence accrual-based accounting is more fitting.

If you are unsure of how to go about your accounts and if you think your books aren’t in good shape, there’s a gap. You need to understand that it will always not be possible to do all your bookkeeping yourself or in-house if you do not have experienced professionals on the team. It is crucial to understand this limitation pertaining to your bookkeeping as early as possible and get the required assistance. There are no shortcuts you can take.