Common Bookkeeping Mistakes

Bookkeeping mistakes? You must be wondering how’s that possible. But, yes, not necessarily you know you’re making mistakes but when you see things don’t move as per your expectations when it comes to cash flow management, payroll, accounts, and more, you feel things are not right. 

But, you won’t be able to identify that it’s the mistake that has happened with the entire bookkeeping and accounting.

Let’s go with the definition of bookkeeping mistakes, first.

What are bookkeeping mistakes?

Errors while producing or maintaining the company’s transaction details are termed bookkeeping mistakes. To avoid the financial problems that come with bookkeeping mismanagement, it’s important first to be aware of the pitfalls that can trap you.

14 bookkeeping mistakes that small business owners make

We want to specifically talk about bookkeeping mistakes that happen with small businesses as they tend to have lesser knowledge or experience around accounting.

1. Not hiring a professional accountant

It is the most ignored bookkeeping mistake. As a small business owner, you must understand that you are not programmed to do everything on your own. An excellent running business requires differently skilled personnel for different tasks. 

Bookkeeping is no easy task, and without proper knowledge, the business is more likely to fail if one tries to maintain records. 

A professional accountant is skilled and well-trained for such jobs. Considering your requirements, you must hire one. We would recommend getting an experienced bookkeeping services provider in place to help your accounts sorted. They can do bookkeeping more efficiently, avoid any potential errors, and provide you with suggestions.

2. Having inaccurate records

Inaccurate records are one major cause of the downfall of a small business. Data is the most critical part of any firm. Once you start to neglect, nothing can stop your losses.

This can be done through timely creating of records, being strategic with the record files, preventing duplication of records, prohibiting any outside access to these records, and maintaining each record entirely and concisely.

3. Not keeping personal and business finances separate

It is one of the most overlooked mistakes in small businesses. Merging up your expenses with your business ones will cause an error in final records. These records will then show higher financial costs than you expected. 

You can avoid this mistake by opening a separate account for your business, keeping personal and business invoices separate, and keeping track of using any individual item for business purposes.

4. Categorizing expenses incorrectly

Incorrect categorising will lead you to malfunction transaction records. These may occur because of making guesses, throwing away transaction invoices, ignoring important facts while creating records, errors while inputting these data, etc. These can be avoided by concentrating on maintaining the records, stopping making guesses, keeping digitally backed-up transaction details, and taking into account all the necessary facts and figures.

5. Having no backups

A newly started small business has no certified guarantee to succeed. If you don’t have any backup, you may end up bankrupt because all your data would have been lost. So backing up your data and transaction records is essential. 

For this, you can use online servers that regularly keep uploading your data to the cloud. This backed up can be accessed from anywhere worldwide, even if your physical records are damaged or lost. At IBN Tech, we use technologies to get this thing sorted so no business has to suffer from data losses.

6. Managing cash inappropriately

Improper management of money will cause the flow of it like fluid and this happens to small businesses the most. You will get no idea where all your profits have been expensed. 

To manage cash appropriately, you must hire a financial expert to provide the necessary suggestions for your transactions. At IBN Tech, our finance expert keeps a close watch on your cash and helps you put the right payroll cycle and credit policies, automate the receivables, and more to ensure your cash flow remains intact.

We also help you set your prices, keeping in mind the investment. In addition, do a regular analysis of records, address potential risks, and establish a protocol to control the non-essential payments.

7. Missing out on proper communication

Most of bookkeeping blunders happen when there is no proper communication between the accounting team, business owners, government, and even internal and external shareholders.

When the communication goes wrong, 

 

  • The management tends to make wrong decisions
  • Investors would never know what’s going on in the business
  • The tax process can get hampered
  • You might not get business loans
  • And many more things can happen

 

And it’s obvious that small business owners don’t have time to do everything on their own.

So, the accountants and bookkeeping services providers or CPAs that you hire should be amazing at interpersonal, written, and verbal communication.

8. Failing to track reimbursement expenses

Reimbursement expenses are the payments made to employees, customers, or third-party out of your pocket for travel or food. There are no records for such payments. This is most commonly done for quick completion of any task. 

But this will get you low on records because you won’t be able to track such payments. 

To avoid this, you should define the payment procedures and protocols, impose limits on your employees’ business expenses, make it mandatory to maintain records of each payment digitally with transaction receipts, and maintain each employee’s payment details.

9. Overlooking sales tax

Taxes are expenses that can take away a huge amount of your income if not neglected or overlooked. If you don’t maintain records of it, it will flow out of your account with nothing left. To avoid it, you should maintain sales tax ledgers regularly after paying the taxes, keeping the receipts for future review, separating the amount of tax from the income, and paying taxes on time, so it doesn’t get to a burdensome value at once. 

Tax charges can be different according to the places, the best to go to the region specific specialized services for Phoenix, Florida or any other.

10. Mishandling sales tax

Handling taxes is quite crucial to managing your expenses. If you are a small business owner, you are more likely to be stressed about managing sales tax. 

To do so, your bookkeeping and accounting company can help you 

  • Inform when the sales numbers are going to exceed
  • Pay estimated quarterly taxes
  • Maintain a tax ledger accurately
  • Deduct payable taxes from your income
  • You can separate business and financial expenses 

 Not everything you can handle yourself as a small business owner because if you do so, you may end up messing things up.

11. Not reconciling your books

Resolving errors in your books and records will give you an upper hand in managing your small business. Not doing so will cause you to repeat the same mistakes again and again and you will notice no improvement in your business instead of your efforts. 

To avoid this bookkeeping mistake, pay close attention to all the transactions, keep track of cash flow, record expenses, prepare financial statements, hire a professional accountant, and double-check your books.

12. Not reviewing books

How come not reviewing books is a mistake? Of course, because if you don’t do so, you won’t be able to know how your business is performing and for small businesses, this is crucial to know.

Reviewing books gives you-

 

  • Understanding on the major expenses
  • Information on how much you can invest more
  • Update on your financial health
  • Clarification on how many payments you’re expecting and how much you’ve received already
  • Strategic information on how your business is doing

 

So now imagine you don’t have a process to review books timely, what would happen? 

Get the right team and process to sort this process where you do not necessarily need to always look at the books thoroughly. The accountants provide you with the insights and you make the decisions based on that.

13. Neglecting to review financial statements

Financial statements are the records that produce and convey any company’s business activities on a financial scale. These statements are the framework for your future transactions. Neglecting to review them will prevent you from comparing your past and present payments. This can be a sign of degrading business. So, you must check the financial statements regularly to keep track of deals and payments. You can also hire a trusted and well-skilled financial expert or accountant to get this task done for you.

14. Not keeping up with the regulatory change

Around 51% of accountants feel keeping up with the regulatory change is the biggest challenge. If that’s the case for all business sizes, imagine the scenario with small businesses.

 

And whenever the government has any change in the regulations, it takes a huge amount of time to just understand and clarify. Being a small business owner, if you would try to keep up with those changes yourself, you end up misunderstanding them and creating a mess.

 

When accountants feel the challenge, it’s surely not the cup of tea for small business owners. So, to avoid this mistake, you need to have highly experienced CPAs or accounting firms that would take care of things on your behalf. After all, it’s about your business.

Turn these bookkeeping mistakes into opportunities to grow

Running any business is not an easy task. You need a great amount of time and skill to research market needs and public demands and also your budget for investment. Planning is also necessary for increment and profit. 

Unless you know about bookkeeping and common bookkeeping mistakes, you will always face a downfall in your start-up. 

So, we hope this article will prove to be of real help to you, and you will reach new heights in your business. 

Book a call with us if you want some clarification on any of our accounting or bookkeeping doubts or want to understand more on our bookkeeping services to small businesses.

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