Ep 7 | Bookkeeping Pitfalls
Have you fallen into some of the common bookkeeping pitfalls as a boutique owner? Not counting all of your expenses? Forgetting to account for merchant fees or gift cards? Boutique bookkeeping can often be more complicated than regular bookkeeping and it comes with its unique challenges. This is your business, time and money and these mistakes come at a cost - this podcast is for you if you want to prevent future error!
I saw a reel the other day joking about how the IRS knows what you made in the year, but won't tell you, makes you tell them, and then slaps you with an audit if you're off. It's funny because it's true. And if you are relying on mere deposits hitting the bank as your sales, you are going to understate your sales. You need a system that is accounting for returns, discounts, merchant fees, gift cards, and the ever allusive "credit system", to name a few.
The first pitfall we see A LOT is not accounting for merchant fees. The IRS will require you to submit the whole dollar in sales, and if you don't go into that payment platform and pull a report for your merchant fees to claim as an expense against those sales - you will be over stating your income. You may have made $100, and you have to claim that. But if you don't claim the $2.90 the payment platform kept back from you as an expense, then you are taxed on the $100, rather than the $97.10. Now times that by 100 a month and times that by 12 months in a year and you see how you end up missing quite a chunk of an easy expense to claim.
The second pitfall has to do with gift cards. This is a tricky one because the mistake can go multiple ways. You can either mistakenly leave out gift card sales altogether, you can misuse a gift card "item" you've set up, you can even accidentally count gift card sales twice. I have seen more of the latter. What happens is some platforms count gift card sales when the customer originally purchased and then you count the sales AGAIN when your customer uses the gift card. If you are not aware of how your point of sale is tracking these gift cards, you could end up overstating your sales.
Last thing on with the subject of not counting all your expenses would be spending out of your cash, PayPal sales, or Shopify balance. Cash sales do count as sales - don't listen to the bad advice out there that tells your otherwise. Make sure you are tracking gross cash sales and any business expenses you are spending cash on. When I mention PayPal expenses, that could be confusing because you're probably thinking "but my business card is connected to PayPal". Even still, PayPal gives you the ability to spend out of your PayPal balance and skip the biz card entirely - leaving those expenses missed if you're not accounting for PayPal correctly. Same with Shopify balance, this is a newer one that not everyone is using yet, but Shopify gives you the ability to spend out of your Shopify sales & if you are tracking, you lose each of those expenses!
Accounting for the whole picture of your sales is not only beneficially for trueing to the IRS, but is only way to see an accurate picture of how your business is actually trending.
Take the first step to getting your books in order and fill out the estimate form here. For more content like this, join us in Boutique School - a membership training with our boutique bookkeeping experts to equip you in how to run a business.