Common Bookkeeping Errors & How to Avoid Them
Do you make any of these common bookkeeping errors? Ideas on how to avoid these blunders and form new habits to avoid bookkeeping problems.
The same holds true in our personal life as well as with our business.... bad habits can cause bookkeeping blunders. Every business owner makes mistakes in our bookkeeping. Don't sweat it though! As long as our errors are caught and fixed early enough, we can make sure our business's financial records stay accurate and eliminate our frustration. Knowing our books are complete and free of errors can help us to rest easy and keep our minds at ease.
Disorganized books can weigh heavy on our minds as business owners. With all of the factors of running a business, our bookkeeping should not be keeping us up at night. Here is a list of common bookkeeping errors and some advice on how to avoid them.
Guessing your way through & not remembering dates
Business owners sometimes tend to guess their way through bookkeeping when they aren't fully sure what they're doing. Unfortunately, guessing compounds over time. Guessing can leave years-worth of problems you that need to be fixed for tax time. Examples: Not categorizing expenses correctly, overlooking tax deductions, or missing filing deadlines because the bookkeeping was not finished in time.
Updating those books can take time, but this task should not be put off. Regularly set aside time to update your books. For the most accurate numbers, update your records daily, weekly, or monthly. Also, keeping track of dates is extremely important! You must know when to pay the bills and when customer's payments are overdue. Set calendar reminders or write them in your calendar to remind yourself of this important task.
Procrastinating & Wasting Time
Nobody enjoys bookkeeping, but if you wait until your shoebox is overflowing with receipts, there can be some serious consequences. You will struggle to remember which receipts were for what, you may forget which items are tax-deductible expenses, you won't have time to fix errors, your bank reconciliations will be a nightmare, and you will be making business decision on outdated financial statements.
Tailor your bookkeeping chart of accounts. If your bookkeeping system is not tailored to your business, you will end up spending more time working on your books then needed. Make sure to set up a customized chart of accounts designed specifically for your business. A tailored chart of accounts can help to classify those expenses properly. Also, record small transactions. Make this a habit - even the smallest amounts can put your books out of balance. Over time, your business will be missing more and more money without a record of where it is going.
Do NOT mix business & personal spending
Lunch with a client... I forgot my business debit card. That's ok, I will use my personal debit card. This is hard sometimes, but commingling your finances makes bookkeeping & taxes more difficult. Doing this can also remove a layer of legal protection in the event of an audit. You definitely want to avoid this scenario. Get into the habit of using your business account to cover business expenses.
While we have all run into that problem a time or two, also make sure to save your receipts. Saving those receipts is a helpful way to backup those business deductions. Keep a digital record of your receipts. Store them in Google Drive, Dropbox, Evernote, or various other apps that are attached to accounting software.
Regularly look at those financial statements
Financial statements are a direct window into your business's financial performance. Make a habit of regularly looking at your financial statements to stay in control of your cash flow, create and stick to a budget, and see the different trends in your business. Every report has different information and can help you to make different decisions for your business. Examine these reports over time to see how your business's health is faring.
By examining your reports, the financials can help you make smart decisions to help your business grow. You can identify when it is time to spend and when it is time to save. Over time, you will accumulate months and years of data. With this data, you can observe the trends in your business, gain a greater understanding of your business cycle, and compare results across periods.
At the end of the day, business owners can try to avoid the pitfalls of these common errors in bookkeeping by forming new habits to overcome those pitfalls. Bookkeeping is an important task that can save time, money, and headaches. If you need help to implement new bookkeeping processes or to partner up with an outsource bookkeeper, consider reaching out to Tax C.A.T.S. We are here to provide an easy transition and work with you on a consistent basis.
Holly Conner, EA, MBA