The 5 Most Common Bookkeeping Errors, and How to Fix Them
Entrepreneurs serving as their own bookkeepers tend to make similar mistakes. Here are some of the ones we see most often, and how they can be avoided.
1. Guessing When You Don’t Know What to Do
Entrepreneurs tend to muddle their way through challenges, including bookkeeping. Unfortunately, errors compounds over time, and you could find yourself with a year’s worth of books needing corrections at tax time.
Business owners mis-categorize expenses, overlook tax deductions, and miss filing deadlines because their books are not IRS-ready. These can all be costly mistakes.
If you really want to keep doing your own bookkeeping, educate yourself on the basics to avoid these mistakes; you can find Bookkeeping 101 courses online. Or, if you want to consider outsourcing your bookkeeping, here are some tips for finding a good partner.
2. Wasting Time
If your bookkeeping system isn’t tailored to your type of business, you can spend more time recording transactions than is needed. Setting up a Chart of Accounts customized to your company is key. Then, you need to enter initial balances and always classify expenses in the proper account.
3. Procrastinating Recording Transactions
Waiting until your shoebox is overflowing can lead to unfortunate consequences:
- It will be hard to remember what your receipts and transactions were actually for and how you paid for them.
- Reconciling your bank account will be an arduous task.
- You may not document all your expenses that are tax-deductible.
- You may not have time to catch and fix errors that can lead to real headaches (like a tax audit).
- You might make business decisions based on outdated information.
To avoid these pitfalls, do your books at least monthly, preferably weekly or even more often.
4. Mixing Business and Personal Accounts
Commingling funds makes bookkeeping (and taxes) extra complicated. It can even take away an important layer of legal protection if your business gets audited or sued.
To keep accounts apart,
- manage your business finances in a bank account separate from your personal account,
- get a dedicated business credit card and
- keep some cash in your business checking to cover miscellaneous expenses so you don’t use personal money when your business account is temporarily depleted.
5. Ignoring Financial Statements
Financial statements are a snapshot your business’s performance. If you don’t read them (or don’t understand them), you’re missing out on opportunities to produce revenue and avoid financial catastrophe.
Financial statements keep you in control of cash flow, help you develop (and stick to) a budget, make it possible to spot tax deductions, ensure your best chance of securing a bank loan, and show potential investors why your business is a safe bet.
The team at BookWerksTM is always happy to connect with business owners free of charge to explain how outsourcing the tedious, but important chore of bookkeeping can help their bottom lines. Reach out to us at any time.