Business bookkeeping is one of the most challenging tasks for many entrepreneurs. About 60% of small business owners say they don’t feel very knowledgeable about their financing and accounting skills.
But making bookkeeping mistakes can be the end of your business. Without good bookkeeping, it’s hard to manage your cash flow. That’s one of the worst positions an entrepreneur can be in, given that poor cash flow management is to blame for 82% of businesses that fold.
One way to master good bookkeeping is to recognize the most common bookkeeping mistakes entrepreneurs make. This way, you can steer clear of them and give your business a fighting chance. In today’s blog, we take a closer look at these blunders and show you how to steer clear of them.
1. Relying on Guesswork
Many times, business owners who aren’t completely sure of what they’re doing opt to guess their way through bookkeeping. This is a huge mistake, as guesswork tends to compound over time. In the end, you have a year’s worth of records that need fixing at tax time.
As a result of guesswork, you may end up failing to categorize expenses correctly. A common occurrence is overlooking tax deductions. And since books are hardly ever done on time when you aren’t sure how to go about things, it’s easy to miss filing deadlines.
The best way to avoid guessing is to brush up on bookkeeping fundamentals. Thankfully, there’s a wealth of information and well-written bookkeeping guides online. Take the time to go through these resources so you can approach bookkeeping with confidence.
2. Spending More Time on Bookkeeping Than You Need To
Sure, bookkeeping is an essential part of running a business, but it shouldn’t take all your time. And if it seems like you’re always stuck on this task, it’s very likely that you’re using a bookkeeping system that’s not tailored for your business.
The good news is that there are ways to remedy this situation. One way is to set up a customized chart of accounts from the very beginning. You could also consider getting small business accounting software to help simplify things and make bookkeeping much faster for you.
3. Procrastinating on Bookkeeping Tasks
Bookkeeping for businesses isn’t something many people enjoy. That’s why many people try to put it off until the guilt drives them to do it. But if you wait until your boxes are overflowing with receipts to start bookkeeping, there are going to be serious consequences.
For instance, you’ll find that you struggle to remember what certain transactions and receipts were for. It may also become difficult for you to recall how you paid for the transactions.
Procrastinating on bookkeeping also makes bank reconciliation a nightmare. And if you aren’t staying on top of bank reconciliation, managing business finances becomes an uphill task.
Putting off bookkeeping until it’s too late may result in you forgetting to document certain tax-deductible expenses. As a result, you fail to maximize your business tax deductions.
So, how can you fix this error? The best solution is to do your books at least once a month. This way, you can make sure that your records are always up-to-date and catch errors before they become bigger problems.
4. Mixing Your Business and Personal Spending
One of the top rules of bookkeeping is to separate personal and business expenses. But it’s easy to mix the two from time to time.
For instance, you may take a client for lunch but find that you didn’t bring your company credit card. In the heat of the moment, it may seem like the right thing to pay using your personal debit card.
But this practice will ultimately make your taxes and bookkeeping a maze. It’s also an error that can remove a layer of legal protection if your business gets sued or audited.
The solution here is to avoid using your personal money to pay for business expenses and vice versa. Try to manage your company’s finances in their own business account and get a dedicated business credit card. Always keep some cash in your company checking account to pay for small, miscellaneous expenses.
5. Failing to Read Your Financial Statements
Among the top items on your checklist for bookkeeping should be going through your financial statements regularly. These statements serve as a window into your company’s financial performance.
Entrepreneurs who barely read business financial statements or know how to read them at all put their businesses at a disadvantage. They miss out on opportunities to generate more revenue. More alarmingly, they never see a financial disaster approaching until it’s too late.
The best solution here is to first educate yourself on how to properly read financial statements. Once you’ve done that, make it a habit to read your financial statements regularly with care.
6. Not Seeking Professional Help
Another common mistake inexperienced entrepreneurs make is not recognizing the value of professionals when it comes to bookkeeping. Hiring a bookkeeper can help get your financial records in order within no time. Find someone experienced in your niche and let them assist you where you need help.
There are also accounting firms that provide professional tax planning services online, among other helpful services. By hiring these professionals, you’ll find that your books are always accurate and up-to-date, while you and your employees get to focus on other essential business tasks.
Steer Clear of Common Bookkeeping Mistakes to Stay Ahead
Few business tasks are as essential as bookkeeping, yet many entrepreneurs take it lightly. It’s no wonder they make common bookkeeping mistakes that hurt their business finances over time. Thankfully, you can avoid these mistakes with a little commitment on your side and some help from the professionals.
Are you in the market for reliable bookkeeping services? Get in touch with us today and learn how we can help.