A common problem with being a business owner is being involved with every aspect of your company. You want to understand and manage everything but it can get overwhelming trying to do it all yourself.
For these reasons, you must ask for help and hire someone who’s an expert at what they do. This is even more important when it comes to your business finances and bookkeeping. To that end, here are the top six costly bookkeeping mistakes business owners often make, along with the solutions to avoiding them.
1. Incorrect Numbers on the Balance Sheet
The balance sheet is a complete picture of your company’s overall financial health. It showcases your assets, liabilities, income, expenditures and capital. This is why it’s so important to double check that the numbers on your balance have been recorded correctly.
One of the top bookkeeping mistakes includes incorrect numbers on the balance sheet, which can greatly affect the projection of your business. Keep an out for misclassification of transactions, duplicate entries and number-related errors. To avoid any costly mistakes, you must review your balance sheet accounts on a regular basis and have a keen eye for any errors.
2. Not Keeping Track of Customer Payments
Cash flow is what keeps a small business running successfully, and the backbone of cash flow are customer payments. This makes it even more important to accurately track customer payments and record them correctly. Before deposits are input into your bank account, double check that they have been applied to the right invoice.
One surefire way to accomplish this, is by creating a system for when invoices are billed, pending, paid and funds are deposited. This could mean setting up an incoming and outgoing invoicing file box, or recording the payment the moment it comes in the mail. You may even want to block off time at a certain time every week to process, record and deposit customer payments. That way they won’t get lost or forgotten about.
3. Accidentally Recording Transactions to Prior Periods
If you’re the person who handles the bookkeeping portion of your finances, it can open up your books to unintentional missteps. For one thing, you’re busy and may not have the time to maintain proper accounting procedures. This can lead to mistakes like accidentally recording transactions to prior periods, throwing off your balances and profit.
In an effort to save time, this bookkeeping mistake will have actually caused more time-consuming problems as you try to rectify the errors. This is why it’s so much easier to do things right the first time and work with someone who can ensure that all your transactions are recorded properly. In addition, you’ll have more time available for other important parts of your business that you actually enjoy doing.
4. Co-mingling Business and Personal Expenses
This is one of the most common bookkeeping mistakes that business owners make. It’s all too easy to co-mingle your business and personal transactions into one bank account. But this is not a smart move. For one thing, mixing your business and personal expenses can get confusing and makes it a nightmare for accounting procedures.
In addition, if your business is ever audited, the IRS will be able to sift through your entire financial life – including your personal expenditures. For these reasons it’s better for everyone if you set up a separate bank account for business purposes and divide out any personal expenses. In the long run this will help maintain order within your business and allow you to see how your company is truly profiting.
5. Hiring the Wrong Person for the Job
The decision to hire someone to work for you must be handled with the utmost care. This person will have access to the goings-on of your business as well as any private or financial documents. You don’t want to make the mistake of hiring someone who’s the least expensive as they may also be the most inexperienced for the job.
Hiring the wrong bookkeeping professional, for example, could lead to more harm than good. They may not know all of the tax laws or understand how double-entry accounting works. In the end, this could cost you a good deal of time and money as you may be forced to correct their work and pay for costly tax-related mistakes.
On the flip side, the right accounting professional can be an asset instead of a liability. They will be updated on the latest tax laws as well as understand the correct bookkeeping methods. And this person will likely save you money in the long run. Hiring the right person can save money on taxes, get the most out of your deductions and keep your books organized correctly.
6. Thinking Technology is the Solution
Technology is great but it can complicate things. Firstly, you may start relying on it too much and then find yourself in a bind if it ever breaks or stops working. More often than not we’ve seen integrated apps make a huge mess of a company’s accounting system.
For example, just because QuickBooks advertises that anyone can do bookkeeping with their software, doesn’t mean you should. There’s often a big learning curve with new software. And unless you have time to master software it’s best left to to the professionals, otherwise you could make a huge mess of your numbers.
But there’s good news! Here at Trailhead Accounting Solutions, we love apps that can automate and streamline our workflow. We keep an eye out for qualified apps that connect with QuickBooks without relying on technology too much. Once you’re setup and everything is running correctly, this can be a huge time saver. Give us a call today and we can work with you to avoid these costly bookkeeping mistakes for your business.