As an entrepreneur, your role in your business may be categorized by many names: boss, clerk, accountant, advertiser, public relations, secretary, front desk, cook, builder, designer...the list of hats goes on. Being a small business owner is a monumental task and requires more than a little elbow grease. It requires the gumption to succeed and the intelligence to understand a bit of everything. You’ve got employees who depend on you—not to mention your own family, so you don’t have the luxury of getting things right on the third or fourth time. You’ve got to get it right now. Since bookkeeping is a full time job in and of itself, here are three mistakes to not make when maintaining your small business bookkeeping.
1. A lot of inventory and no money
It is important to make sure you don’t tie up all your funds in inventory. However, if you currently have inventory available, you may not have much in the way of immediately accessible funds but you do have equity sitting on your shelves. Whether that’s lumber in your carpentry business or ingredients for a restaurant, your inventory is worth something. Each of these items has specific value to your business’ sales and profit, so they should be treated like money. You should have complete lists of your inventory that are maintained as often as possible. When inventory is used, it should be noted and tracked, making sure none is wasted; every bit of inventory wasted is money lost. Keep track of what is taken in, what is sent out or used, purchase dates, where items are stored, and the conditions in which it is stored.
2. Using a personal bank account to track your expenses
Just like you balance your checkbook with your bank account, it's important to keep a ledger for your business that tracks your revenue, expenses and debts. Keeping track of every purchase made or sale completed will help you know the exact amount of money you are making or losing. The benefits are enormous: you can immediately identify discrepancies between your ledger and bank account, you have clear paper records for the IRS if you are selected for audit, and you can make purchases wisely, knowing exactly how much you have to spend on more product. This even comes down to tracking petty cash. Be sure that every penny is accounted for. You’ll be thanking yourself at tax season for creating and using your ledger and files.
3. Allowing employees to work whenever they want
That makes sense—let your employees tell you when they want to work, how often or how much you owe them, or what benefits they deserve. NOT!
In order to run your business effectively, you need to develop patterns of order and structure. Set employee schedules and follow a system to track their hours, pay and benefits. For example, under the law, each type of employee is guaranteed different requirements. Full-time employees have breaks, full benefits and vacation time. Part-time receive a part benefit, and freelance or temporary employees aren't covered by either of those. Maintaining time worked, benefits and their declared status as full/part/freelance helps you track the cost of those employees.
These are just three common mistakes made by small business owners when it comes to bookkeeping. Serious time should be devoted to bookkeeping. I would even go so far as to suggest auditing classes at a local college or doing some bookkeeping research for more advanced information. If you don’t have the time to devote to this kind of commitment, hire a bookkeeping professional as soon as you can or get some technology help. Don’t forget, these are your business’ pennies on the line—your creation, pride and joy.