After 25 years of experience, I have seen just about everything, when it comes to bookkeeping. And unfortunately, I’ve seen some mistakes made again and again! As I have observed, the biggest bookkeeping mistakes business owners consistently make are these
Mistake #1: Trying to Do it Yourself.
Many people don’t take actual accounting as seriously as they should. Businesses fail due to poor financial management. People think bookkeeping is “so easy” – but they’re wrong. A lot of people don’t know all the tax deductions and don’t know how to categorize things correctly. If the entries are not done correctly the reports will be wrong. I do think that most people want to do it themselves because allowing someone else to handle their finances is a big deal. However, are they really trained and prepared to do so? They may not even really “want” to do their own bookkeeping (and so they procrastinate), yet they find themselves unwilling to surrender control regarding something so personal as their money.
Mistake #2: Not Setting Up a Bookkeeping System Properly.
My solution to the control quandary is simple. Have someone: ▪ Set up the entire system (chart of accounts customized for your business.) ▪ Enter initial balances etc. for you. ▪ Give you a weekly checklist of items to do each week, and then, ▪ Oversee your work on a monthly basis. This way, you can ensure the accuracy from the beginning and can learn along the way because you’ll have someone to oversee and let you know of the mistakes. Setting up the software and accounts and system is the KEY to making sure that things are done correctly. If you need help with this, my company offers this service. We call It TFO or Total Financial Organization, and it allows you to get organized and stay organized when it comes to your finances.
Mistake #3: Not Entering Transactions and/or Reconciling on a Regular Consistent Basis. “I’ve got a box of receipts for the last 5 months, this is going to be a tough night!” The further you get from the expense (or the income), time-wise, the harder it is to catch errors and fix errors. If the transactions aren’t done correctly then the financials won’t be correct either. I recommend reconciling weekly. Whatever period you choose, do it regularly and don’t let it get away from you!
Mistake #4: Not Entering or Writing the Expense Details. “I know we had a board meeting in Hawaii… now I need to show what topic was discussed, when and by whom!?” Obviously, receipts and statements and all related documents are needed in case of an audit. I suggest scanning in everything and using a simple document storage program like Dropbox. Alternatively, QuickBooks Online (my software of choice) allows you to upload documents right into the program to keep with the transactions they relate to. It’s easy to drag and drop right into the program. While your receipts don’t have to be physical scraps of paper, you do need to save them for all expenses over $75. (Even for expenses under that amount, you still need a paper trail, such as entries in a notebook or smartphone.) Frankly, it’s just good to get in the habit of saving receipts for everything! If you are ever audited, you’ll want them. If you’re not, receipts can come in handy when doublechecking your work or clarifying exactly what was purchased.
Mistake #5: Not Looking at Financials on a Regular Basis. “Am I supposed to DO something with this!?” The purpose of accounting is so that one can use the financials in determining the profits of a business as well as its net assets. They are used for budgeting, future planning and financing. Don’t fall for the limited idea that the purpose of bookkeeping is to get your taxes done. Understanding every aspect of each of the reports on a regular basis is KEY to knowing what is going on with your financial picture! Review your cash flow statements monthly. Notice trends, and where improvements can be made. If you’re not sure what you’re looking at, ask for help from the accountants or lead bookkeepers on your team. If you avoid these 5 common mistakes, you’ll find that bookkeeping will truly support you in guiding your business to success. Happy Bookkeeping!