7 Bookkeeping Mistakes You Need to Avoid for a Successful Business

Posted 12 Feb '20

It is common for business owners to do bookkeeping, but this is where most of them make mistakes. These mistakes might seem like no big deal, they can easily cost you a lot of effort, time, money, and even the business. If you have been thinking a lot about handling your books, then you don’t have to worry because you are not alone, we can help.

Great bookkeeping is the backbone of positive cash flow, and 82% of small business usually fail because of problems with their cash flow, making it important to have an experienced bookkeeper if you want it to succeed. Being a business owner is a full-time job with a lot of things needing your attention, and it doesn’t make sense to start putting in more roles like a bookkeeper.

Below are seven bookkeeping mistakes that small business owners tend to make, and you can avoid them for your business to thrive.

1. Giving Bookkeeping Too Much Time

When you do bookkeeping are aren’t experienced, you can expect it to take a lot of time, which may just end up wasting a lot of your time. When you work without a bookkeeper using systems that have not been customised for the business or you don’t have any idea how expenses are classified, you will end up facing a lot of challenges.

“Time is money” as explained by small business owner and operator Russell Betland of No More Birds, “it’s an age old saying, but nothing is more true, especially when your business is service based, you need to spend your time servicing your customers to ensure they are satisfied, not pouring over accounts you don’t understand”

Each mistake listed here will lead to too much time being spent on bookkeeping. If you are in such a situation, then you don’t need to worry because you can save a lot of time by hiring a skilled bookkeeper. You can use this time to focus on other areas of your business.

2. Avoiding Reconciliation

This is a process of checking whether the bank statements match with the books. This process is usually tedious, and this is why people tend to ignore it until the last minute. To manage your finances properly, try having the reconciliation done on a weekly or monthly basis.

When you ignore reconciliation, the business can easily become susceptible to misreported information. This process can help in catching mistakes and fraudulent activity. There was a survey done by WePay SMB & Money, where they found out that 25% of business owners experienced disputed and fraudulent transaction. These type of transactions can result in losses and missed errors that add up.

3. Mixing Business and Personal Expenses

One in every five business owners mix their business and personal accounts. While it might not seem like a big deal, having a blurred line between business and personal expenses ends up making bookkeeping even more challenging.

When you mix your business and personal finance, you can expect to have a hard time filing your taxes, write-offs, and missed expenses, which causes more time to be spent on bookkeeping. It also makes your business vulnerable if you get sued or audited.

When you mix your personal and business expenses, you end up making it hard to have a clear understanding of both your personal and business finances.

4. Improper Categorisation

A skilled bookkeeper knows the importance of proper organisation, and for finances, a big aspect of being organised is to implement proper categorisation, which will help in keeping your books accurate and you can easily know the financial situation of your business. This allows you to make informed business decisions using the numbers.

Dan Cerminara of DC Cladding advises, “As I need to spend big on my customers orders of cladding supplies I need to know that, a) the money is available and b) I am going to get that back. Having properly categorised bookkeeping means I never overspend”

Improper categorisation comes in two forms; having the wrong categories and too similar categories. When you have many categories that are the same – such as a category for other supplies, office supplies, and general categories – you end up with chaotic books than can be overwhelming for you.

If there are wrong categories, then you might end up having inaccurate books that can lead to confusion and stress. When you have incorrect categorisation, you will have a hard time seeing business trends, and you can easily make a mistake when it comes to claiming deductions. It is important to know the categories and keep them as accurate as possible so you don’t end up with excessive categories.

5. Poor Invoice Management

This is important for cash flow because it will determine when and how you are going to get payments. Research has shown 41% of small business owners consider the biggest cash flow management problem is their payment collection. When it comes to payment of the work you have done, it is more than just the invoice.

Common problems related to invoice that business make include;

1. Failing to create clear and easy-to-pay invoice
2. Failing to maintain an invoice schedule
3. Failing to enforce late fees or deposits
4. Failing to initiate reminders
5. Failing to establish the maximum debts and not closely managing them

Pearl Toh owner and operator of Pearl’s Creations advises, “Collecting deposits for work has saved me 10’s of thousands in overspending, I used to complete orders in good faith until my bookkeeper advised me of how much I have spent on supplies for unpaid orders. I also ensure full payment is made upon receipt of the cake or sugar figurine or before it is sent to be delivered”.

6. Failing to Keep Proper Records

For your business to succeed, it needs detailed and accurate financial records. The two common mistakes business owners make is not storing invoices properly and throwing away receipts.

It is important to keep bills, receipts and invoices for your business. If it is unfortunate and you need to face an audit, you are not going to rely on the bank statements if you don’t have records to support.

7. Not Staying Up-to-Date

If you still prefer the shoebox method, then it might be the best time for you to upgrade. You need to have the best systems for effective bookkeeping. There is a wide range of options when it comes to software choices, and most of them will do more than just holding your record. A good software will organise your business records, prepare financial statements, projections, and help you in the day to day running of your finances.

Get a Bookkeeper if You Want to Grow Your Business

Whether you are getting started with a new business, or you are having a hard time with handling finances of your business, then you should consider getting an experienced bookkeeper who is going to help you out and free up your time to focus on other areas of your business. While adding an expense to your business by hiring someone, you are going to get value both in terms of time and money.

You should focus on what you are good at, why should you try bookkeeping and end up making mistakes that negatively affect your business. You should leave this to our bookkeepers over at Empire Bookkeeping so you can focus on other aspects of your business.

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Written by: Eric Vance