10 most common bookkeeping mistakes:
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Here’s a look at common bookkeeping mistakeswe often see (and fix!), along with our best advice on how to steer clear of them.
1.Guessing your way through
Many entrepreneurs find themselves guessing when it comes to bookkeeping, especially if they’re not quite sure what they’re doing. The big problem? These guesses pile up, potentially leaving you with a year’s worth of books that need fixing come tax season.
This can look like:
- Misclassifying expenses
- Missing out on tax deductions
- Filing deadlines blown because your books weren’t ready
If any of this sounds familiar, don’t fret. We’ll show you how to avoid these snags. For now, just trust us: a “best guess” approach to your books will definitely come back to haunt you. Founders should be focused on growth, not getting bogged down in bookkeeping. Leave the technical stuff to the experts in this field so you can focus on what matters most- Growth.
If you’re new to bookkeeping or feeling completely lost, it’s a good idea to brush up on the basics. And if outsourcing makes sense for your business, check out our tips on how to hire a good bookkeeper before you start your search.
2.Delayed bookkeeping
To be fair, most people don’t exactly “enjoy” bookkeeping (we’re the exception, of course!). But if you wait until your receipt shoebox is overflowing and guilt forces you into a bookkeeping marathon, you’re setting yourself up for some serious headaches.
You’ll likely:
- Struggle to remember what those receipts and transactions were actually for (let alone how you paid!).
- Find bank reconciliation becomes a total nightmare.
- Forget to document valuable tax-deductible expenses, meaning you won’t maximize your small business tax deductions for the year.
- Not have enough time to catch and fix small errors before they snowball into major problems.
- End up making business decisions based on outdated financial information.
Our advice? Do your books monthly at the very least. Weekly is even better. Daily, if your bookkeeping needs are truly insane (at that point, as Sup suggests, you should probably hire a bookkeeper!).
Ready to get your finances in order? Check out our services or schedule a free consultation today!
3.Mixing business and personal spending
Imagine this: you’re out with a client for lunch, but you forgot your business credit card. No big deal, you can just use your personal debit card, right?
In the moment, it seems easy to pay for a business expense with personal funds. But over time, mixing your finances like this turns bookkeeping (and taxes) into a confusing maze. It can even strip away a layer of legal protection if your business ever gets audited or sued.
To avoid this pitfall, make it a habit to never use your own money for business expenses (and vice versa).
Here are some tips to keep everything tidy:
- Manage your business finances in a dedicated small business bank account.
- Get a separate small business credit card.
- Put a sticker on your business bank cards to avoid confusing them with your personal ones.
- Keep a small amount of cash in your business checking account for quick, miscellaneous business expenses (so you’re not tempted to dip into personal funds when business accounts are low).
Of course, if you accidentally use the wrong card, it’s not the end of the world. You can reimburse your business account or record the purchase as an “Owner’s Draw.” But why bother with the hassle if you can avoid it entirely?
4.Neglecting your financial statements
Your financial statements are a direct window into your business’s financial health. If you’re not reading them regularly (or don’t know how to read them at all), you’re missing out on huge opportunities to boost revenue and dodge financial disaster.
Financial statements can help you:
- Control your cash flow.
- Create and stick to a budget.
- Spot ways to maximize your tax deductions.
- Successfully apply for bank loans.
- Identify financial trends in your business.
- Know when to spend and when to save.
- Make smart financial decisions that fuel your business growth.
- Show potential investors how your business is performing.
Unsure how to find this information in your financials? Learn how to read financial statements and ask your CPA for guidance. You’ll gain valuable financial insights, and your business will thrive in the long run.
5.Throwing away receipts!
If receipts disappear (or end up in the trash), you won’t be able to back up the deductions you claimed on your tax return during an audit. You might even face a fine.
A few quick notes about keeping receipts:
- Digital records are perfectly fine.
- You may need to present receipts upon request if your business is audited.
- To be safe, you should keep receipts for seven years.
Snap a picture of receipts on your phone and store them in Google Drive, Dropbox, or Evernote—whatever’s easiest for you. Alternatively, upload photos of your receipts directly to your accounting software.
Also, be sure to record the details of every expense (especially for meals and entertainment). This will make finding your receipts easy and help you justify the deduction during an audit.
If you’re new to recordkeeping, grab a coffee and dive into our guide: Small Business Recordkeeping: Tax Records You Need to Keep.
6.Hiring an inexperienced bookkeeper!!
When it comes to hiring a bookkeeper, you truly get what you pay for. That bookkeeper you found for $6/hour is probably worth… well, $6/hour.
Hire someone with bookkeeping experience in your specific niche. They’ll have tips and tricks up their sleeve tailored to your industry, and they should be able to get your books done much faster.
We’re experts in QuickBooks, Zoho, Wave, and Xero, and we work with numerous startups and small to medium-sized businesses (SMBs). Our main goal is to help busy founders like you focus on operations and growth by providing solid support in finance and other essential functions.
Speed up your search for the perfect bookkeeper with our guide: How to Hire the Right Bookkeeper for Your Small Business.
7.Recording payments to yourself as an expense
This is a bit “nitty-gritty,” but we see this bookkeeping mistake quite often.
For sole proprietors and single-member LLCs: when you pay yourself, do not categorize these payments as an expense. It’s an easy mistake to make, but it will artificially lower your overall profit and show a false total for the income you need to pay tax on.
Instead, record these payments to an equity account called “Owner’s Draw.”
8.Transfers categorised as “income”
Does your business receive money through multiple accounts? For example, do you get payments via PayPal or TransferWise?
At some point, you’ll likely transfer that money to your business checking account. When you do, be aware that accounting software will often record that transfer as “income” (because the total cash in your checking account increases).
Whenever this happens, you’ll need to log in and update the transaction so it appears in your books as a “transfer” (money moving from one account to another), not “income” (new income being deposited).
9.Neglecting sales tax
Frankly, the tax office doesn’t care if you understand your sales tax obligations or not. They just care that you pay the sales tax you owe like whether you’ve been collecting it from your customers or not.
Our best advice is to have your CPA determine and explain your sales tax responsibilities before you start your business. If you haven’t consulted with a CPA yet, it’s never too late to schedule a check-in.
A good CPA can help you:
- Understand your sales tax obligations.
- Collect sales tax correctly.
- Know your sales tax filing deadlines.
- File your sales tax on or before the deadline.
Understanding your sales tax obligations will help you avoid owing a surprise lump sum come tax time.
10.Not classifying employees correctly
Is that worker you just hired an independent contractor or an employee? Get this wrong, and you won’t just mess up your books; you’ll risk steep fines from the IRS.
The IRS is strict about this rule because some business owners knowingly misclassify “employees” as “contractors” to avoid taxes and paperwork.
How Sup Can Help
Avoiding these common bookkeeping mistakes is essential for maintaining your business’s financial health.
At Sup, we provide the tools and expertise to ensure your bookkeeping is accurate and efficient. Our team of experienced professionals can help you set up a customized chart of accounts, stay on top of your expenses, and keep your financial statements in order. With Sup, you can focus on growing your business while we take care of the details, helping you avoid costly errors and ensuring your financial success.
Ready to simplify your bookkeeping? Let’s chat about how we can help your business thrive.
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