Toilet money is when small business owners take their hard earn money and flush it down the drains due to having poor bookkeeping practices. Building a solid financial foundation is very important for the success of small businesses. According to the New York Times, poor accounting practice is listed in the top five reasons why small businesses fail. Problems in this area can damage the company more than any other aspect of the organization. Nevertheless most owners pay little to no attention to this area.
1. No organization of supporting documents. All documents which includes but not limited to receipts, bank statements, machine and equipment purchases, employee data and customer invoices should be available and organized at all times.
2. Commingling personal and business funds. Most small business owners believe it is perfectly okay to purchase business items with their personal funds and purchase personal items with their business funds. Most owners do not open a separate business checking account. There is a correct way to use personal funds for business purchases. However must owners are not aware of the proper way to handle this type of transaction. This is a good reason to hire an experience bookkeeper.
3. Mis-categorization of Expenses. Not having knowledge of the Generally Accepted Accounting Principles (GAAP) most business owners' categories expenses completely incorrect or create far too or not enough expense categories. GAAP includes the standards, conventions, and rules accountants follow in recording, summarizing, and the preparation of the Chart of Account.
4. No understanding of financial statements. There are three important financial reports that majority of businesses will use during the life of the business. Income Statement (Profit & Loss Statement), Balance Sheet, and Statement of Cash Flow. Most owners must understand what each statement means to better understand what steps are needed to maintain longevity and build a very successful business. Again, this is another great reason to hire an experience bookkeeper.
5. Doing the books themselves to save cash. I found that a lot of business owners are under the false belief that completing the recording aspect of their business will save them money. Wrong!This then leads to costly mistakes, IRS payment penalties and possible closing of their business. A competent bookkeeper would not only save you money but will also know the guidelines and how to avoid costly errors.
With proper bookkeeping practices you are placing your company on the road to financial success.
1. No organization of supporting documents. All documents which includes but not limited to receipts, bank statements, machine and equipment purchases, employee data and customer invoices should be available and organized at all times.
2. Commingling personal and business funds. Most small business owners believe it is perfectly okay to purchase business items with their personal funds and purchase personal items with their business funds. Most owners do not open a separate business checking account. There is a correct way to use personal funds for business purchases. However must owners are not aware of the proper way to handle this type of transaction. This is a good reason to hire an experience bookkeeper.
3. Mis-categorization of Expenses. Not having knowledge of the Generally Accepted Accounting Principles (GAAP) most business owners' categories expenses completely incorrect or create far too or not enough expense categories. GAAP includes the standards, conventions, and rules accountants follow in recording, summarizing, and the preparation of the Chart of Account.
4. No understanding of financial statements. There are three important financial reports that majority of businesses will use during the life of the business. Income Statement (Profit & Loss Statement), Balance Sheet, and Statement of Cash Flow. Most owners must understand what each statement means to better understand what steps are needed to maintain longevity and build a very successful business. Again, this is another great reason to hire an experience bookkeeper.
5. Doing the books themselves to save cash. I found that a lot of business owners are under the false belief that completing the recording aspect of their business will save them money. Wrong!This then leads to costly mistakes, IRS payment penalties and possible closing of their business. A competent bookkeeper would not only save you money but will also know the guidelines and how to avoid costly errors.
With proper bookkeeping practices you are placing your company on the road to financial success.
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