Here at Tyto Alba, we make it our business to help your business succeed through our in-depth knowledge of bookkeeping, accounting, and financial focus for small businesses. Let us help you avoid the biggest pitfalls for small businesses in their bookkeeping journey.
While the IRS doesn’t require tracking receipts under $75 with backup documentation, it’s still an excellent idea to do so. It’s pretty easy to keep these organized with a third-party app made to keep track of receipts. Simply taking a picture of a receipt and storing it in the cloud is super easy and allows you to document these small purchases. These small purchases often can result in many small deductions, which will equal significant savings come tax time.
One of the quickest ways to lose money is not to know or not track your reimbursable expenses. The best way to keep track of reimbursable expenses is to do it with regularity. Have a time set aside every week where you tally up your receipts and look for items that are considered reimbursable.
Audits are a real pain for a small business, so you should be prepared for one. In the event of an audit, the IRS will want to see a paper trail of well-organized documentation for everything having to do with your company's finances. Keeping copies of receipts and other documentation for seven years is a great way to ensure you will be ready for an audit.
Any business that utilizes petty cash should appoint a custodian for it who manages and approves purchases. Appointing a custodian for petty cash ensures accountability for the funds, which deters fraud, theft, and mismanagement of those funds. Setting clear policies around how petty cash can be used may sound like an unnecessary chore, but it makes it clear when employees are allowed to use it, reducing the chances of mistakes.
When it comes time to pay taxes, you might pay big time if you’ve improperly classified a contractor, consultant, or freelancer in your employ. Improperly classifying those working for you can lead to tax penalties and even lawsuits, so it’s in your best interest to get it right the first time.
If you have someone on the payroll that manages your books or outsource the task to a contractor, the worst thing that you can do is neglect to communicate important financial decisions you have made to them. Communication is the key to the success of any business. If you give someone a bonus for performing great work and don’t communicate that to the person who manages your books – there’s going to be a big flub in the bookkeeping department.
You are the lynchpin that holds your company together. You have to manage employees, build processes, be aware of company finances, keep customers happy, oversee materials ordering, and so much more. Don’t add “be solely responsible for all the accounting and bookkeeping of your company” to that list. It’s a super-common mistake that tons of small business owners make, and it’s easily avoidable.
