Bookkeeping can be tedious and time-consuming, for small business owners and medium sized businesses….sometimes it is not in their top list of priority and being brushed aside.
But without proper bookkeeping, business owner will easily make poor business decisions due to inaccurate information or absence of financial information at all.
The best way to organize your books, is to do it properly in the first place. Doing so will save you so much time and money from cleaning up messy books.
Below are top 5 bookkeeping mistakes you must avoid:
1. Combining Business and Personal Expenses
A very common situation when you started business you use your personal checking and card accounts to pay for business expenses. This is fairly understandable at the beginning, but don’t let be a continuing practice. Not only will it make tracking business expenses harder, it will create more time-consuming mess that you need to organize later on.
As soon as possible, open a checking account for receiving income, a credit card for paying expenses, and a savings account to save money for paying yourself and the tax authorities.
2. Using Manual Accounting Systems
Time consuming, feature limited, and prone to human errors, are several key factors that make using Excel or spreadsheets not enough for your bookkeeping needs.
Using QuickBooks Online is very easy, and provides robust counter-checking, customizable reports, and simplified way of entering income and expenses to avoid human errors.
3. Miscategorization of Expenses
Oftentimes, a business will owner will try to do the bookkeeping themselves. While you know what things you have bought, what services you have paid for, the optimal categorization can be a challenging task for business owners who are not familiar with accounting standards.
This often leads to a set of financial reports that won’t help you make the best decisions for your business or a set of books that doesn’t make sense at all.
4. Hiring Inexperienced Bookkeeper
If you put high value on the financial information that can help you make strategical decisions for your business progress, why try to hire an inexperienced bookkeeper at a lower cost?
When it comes to hiring a bookkeeper, you will undoubtedly get what you pay for. It happened a lot of times where a client told me that a previous bookkeeper he/she hired messed up the books or did not do it the way they would like…and they want me to help clean the books, update, and reconcile for good.
Try finding a bookkeeper who specializes on your niche or industry. They will have tips and best practices that will make your life so much easier and get the job done more accurate and faster.
So instead of viewing it as another expense to eat up your income, treat hiring a good bookkeeper as a significant business investment, a good business partner, that will help bring success in the long run.
5. Putting if off until the due date is only a few days away or until your guilt drives you crazy
In many instances, business owners try to forget or neglect their needs for bookkeeping. Until time comes, tax is due or a big problem has arise.
But the consequences of putting your books off for a long time are not easy to resolve in a few days time.
- Hard to remember – for past transactions, you may have forgotten them already
- A messy books make bank reconciliation and account reconciliations harder
- Mistakes and errors from past years will affect the current years’ bookkeeping
- You won’t have enough time to catch errors and issues in the books
- You will miss a lot of possible business deductions when tax filing is already due
For the past five years I’ve worked with business owners in their bookkeeping, I see there are generally two kinds of mindset business owners have.
a. They love their books and put trust in properly doing it will help them meet their business and personal goals
b. They hate their books and think it’s another unnecessary expense that eats up their income
A lot of times, I saw surprising growth with businesses who put trust to their books and loves doing it properly.
While for businesses that neglect their books, a lot of problems usually arise, headaches, wasted time, and most importantly, the business is losing more money in the long run.