At the outset, many small business owners lack knowledge about basic accounting concepts and procedures, which can lead to bookkeeping mistakes during the early years of an operation (and, potentially big problems down the road). So what are the 10 most common bookkeeping mistakes small business owners make? 1. Blindly Following a DIY Approach It’s not rocket science after all, right? Many small business owners make the mistake of thinking they can handle all the bookkeeping aspects of the business. And that may be a good strategy in the very early stages of a start-up when operations are a bit more simple and bootstrapping is the name of the game. But as the organization grows, business owners often miss the point at which the DIY approach isn’t working until it’s too late and big mistakes show up. These mistakes can affect the financials used to make strategic decisions, which can ultimately put a dent in the bottom line. Garbage in, garbage out. And that’s not to mention the hazards of accidentally misreporting financial information on tax returns. Finally, it can end up being far more expensive to pay a professional to come in and untangle these mistakes than it is to hire one at the outset. 2. Price Shopping for a Bookkeeper No, bookkeeping isn’t brain surgery. But just as you wouldn’t perform your own brain surgery or choose a brain surgeon solely based on price, you shouldn’t choose your accountant or bookkeeper using only price as a benchmark. Because
Many people use the terms bookkeeping and accounting interchangeably, and both are equally important in terms of running a business organization. It’s easy to understand why both appear to perform the same function, since they are interrelated and require many of the same skill sets. For example, both require knowledge of the dual entry accounting system, and both deal with financial transactions. But there are some important differences to understand, especially when searching for a service provider. The Basics In very general terms, bookkeepers are responsible for keeping an accurate record of all transactions in an organization, while accountants (sometimes referred to as Controllers or CFOs) are responsible for interpreting, analyzing and reporting the financial data. In some cases—usually at a smaller business—one individual can perform both functions. In fact, with the advent of more sophisticated accounting software, many bookkeepers are taking on roles more traditionally associated with accountants. There are many ways bookkeeping and accounting services are different, and here we’ll cover just some of the ways they are distinct from one another. Boots-on-the-Ground vs. 30,000-Foot Overview As a rule, bookkeepers help business owners with the details and the process of keeping the company’s books on a day-to-day basis. Accountants typically provide a broader perspective and deal with more technical transactions. For example, a bookkeeper manages the day-to-day financial transactions of a business, and that means recording transactions in accounting software (with QuickBooks being the most popular among small businesses), updating financial spreadsheets, processing payroll, and reconciling bank and
Undoubtedly, bookkeeping is one hugely important aspect of business ownership. Without it, business owners can’t generate the reports they need to make strategic decisions or properly organize the documentation they need to build a solid audit trail. While often used interchangeably, it’s important to understand the difference between bookkeeping and accounting here since they’re two related but very different functions. Very generally: Bookkeeping involves day-to-day record-keeping, proper categorization of transactions and the reconciliation of accounts. Bookkeepers also typically handle all accounts payable and receivable activities. The accounting process involves taking the data recorded accurately by the bookkeeper and building financial reports to facilitate good business decisions. A good bookkeeping system is invaluable since it allows business owners to keep an accurate historical record of every transaction that makes up the financial reports. So what are the basics of bookkeeping for small businesses? Choosing the Right Software Some businesses start off with the “shoebox” method, meaning all receipts and documents are kept in one place and (sometimes) tracked in a spreadsheet application. Obviously, as the business grows and becomes more complex, this system becomes problematic and requires the use of a more formal accounting system. There are many desktop or cloud-based software packages available to small businesses, and the nature and size of a business have a lot to do with choosing the right one. If you aren’t sure which option is the best fit for your business, ask your accountant or CPA for a recommendation. Understanding Accounts In the language
In his groundbreaking book, The World is Flat, Thomas Friedman talks about how globalization and technological innovation have evened the world’s playing field and changed core economic concepts as well as the way we do business. In this new paradigm of a technologically ‘flattened’ world, more and more businesses are turning to virtual, outsourced solutions for important functions like bookkeeping. With tools like cloud accounting and virtual meeting software, virtual bookkeepers can provide services on par with onsite consultants and in-house staff from anywhere in the world, and usually at a lower cost. What Is A Virtual Bookkeeping Service? Under this model, a bookkeeper works with her or his client remotely using accounting software that allows multiple users to access an account. With this type of cloud account, you— and your CFO or CPA or whoever else you want to grant access — can see financial transactions posted by your bookkeeper and the numbers underlying various financial reports at any given time. But just as with any bookkeeping or accounting service, trust is the main thing. Without it, there’s no foundation for a solid working relationship. If you don’t trust that your bookkeeping service is ethical, experienced and competent, it should be a nonstarter. Why Should I Consider Using a Virtual Bookkeeper? One of the biggest benefits is that virtual services often come with a lower cost than hiring in-house staff or a pricey CPA firm. And the bookkeeper or service can be treated as a contractor, which provides a
Steiner Business Solutions made Richmond Biz Sense‘s RVA 25 list of 25 fastest growing companies in the Richmond region, coming in at number 18. See the 2019 RVA 25 list.