Bookkeeping is important in all business settings, but it's especially important for small operations. Knowing the state of your finances can be the difference between success and failure when your business doesn't have tons of money to work with. When it comes to small business bookkeeping, you need to be aware of these 5 common mistakes. 

Receipts and Reimbursements

Every expense matters. Foremost, this is because your expenses are frequently tax deductible so you want to track every receipt you receive or reimbursement you make. Secondly, the little items are often where companies lose track of costly expenses. A business can absolutely go bankrupt by paying $20 here and $50 there, so you need to track where it's all going. If necessary, you may need to clamp down on these expenses to keep your operation solvent.

Employee Misclassification

Many small businesses make the mistake of misclassifying employees in the bookkeeping. Particularly, some label people as contractors when they are not. This can get very expensive if a misclassified worker suffers an injury and seeks compensation because the company won't have insurance coverage for a contractor. Similarly, the government could force the business to pay back payroll taxes and penalties on misclassified workers.

Cash Basis

You can choose to handle your accounting by one of two methods: cash or accrual. Cash means that expenses and profits go into the bookkeeping system only once they are spent or received. Accrual means that the total value of expenses and profits from transactions goes on the books immediately.

Cash accounting can lead to quirky situations. For example, a furniture company could pay for materials in November for products that don't sell until March. That would put the expenses in one year and the profits in the next, potentially leading to a lost deduction the first year and a bigger tax bill after. Folks in bookkeeping typically discourage using the cash basis because it can be unstable.

Lack of Integrated Processes

A company should integrate its bookkeeping as fully as possible. Likewise, it should use software for the integration. Processes like inventory, sales, payments, taxes, and payroll all need to be part of an integrated system. Not only will this reduce the labor involved in your bookkeeping, but it will improve the accuracy of your math.

Paper Backups

Some small businesses make the opposite mistake. They leave everything on the computer and never make printed copies of transactions and bookkeeping. Printed copies can protect you against catastrophes that might destroy your electronic records. Also, using printed records with signatures and dates will make your books more credible to regulators, tax agencies, and banks.

Contact a local bookkeeping service to learn more.