By Elizabeth Ortiz
Published: July 2020
Today we are discussing common bookkeeping mistakes. After doing professional bookkeeping for so long, we’ve seen it all. Our goals always centered around providing the best client experience possible; sometimes, we start working with a new client who has made some mistakes in the past.
Of course, we make no judgment, but after seeing the same mistakes happen so often, we thought it would be valuable to you to see the most common mistakes small businesses make with their bookkeeping.
Whenever we see these mistakes, we can quickly resolve them to ensure that our clients have the most complete and accurate set of financial records available. This makes everyone’s lives easier when it comes to tax time or an unavoidable audit.
Let’s jump into this list and see if any of these resonate with you.
Mixing business and personal spending
Mixing personal and business spending is very common among bookkeeping mistakes, especially among solopreneurs and companies that employ just one or two people. Although, we have seen it in large organizations as well.
The quick advice here is to simply not do it, and if you’re not positive if spending is personal or business, you should ask your bookkeeper.
This is especially true if the expense is reoccurring or happens often. It would be very time-consuming to have to go through a year’s worth of data to make the corrections necessary.
Moreover, mixing business and personal expenses gives you an unclear view of your business’s financial position. It also makes your personal finances challenging to understand.
When you mix business and personal expenses, your bookkeeper’s job becomes vastly more complicated. That takes more time that would be better used in strategic planning.
Finally, a mixture of personal and business expenses in your business accounts could make things very complicated if you were ever the subject of an audit.
Hiring a bookkeeper who has no experience
It can be very tempting to hire a bookkeeper who is just starting because they will offer lower service rates as they are looking to build their business. It’s important not to be tempted to save a little bit of money on an inexperienced bookkeeper.
We often tell people, your business is critical, and you don’t want someone to learn how to do bookkeeping on your accounts. They could make a costly mistake that goes unnoticed until the end of the year or, worse, during an audit.
If they were to make a mistake that violates tax law, you could be held responsible. That’s the situation nobody wants to be in.
An experienced bookkeeper understands process and methodology and keeps things highly organized for your business. They become an extension of the company and are ultimately one of your most valuable resources.
Not keeping receipts
It’s easy to understand that no one wants to get audited. But it does happen, and it could happen to you. If you are the subject of an audit, you’ll be very thankful to have all of your receipts available during the audit.
Many people believe that purchases under a certain amount do not require you to keep a receipt, and while that may be true in some cases, our advice to you is to play it safe and keep all receipts. We recommend maintaining electronic versions of your receipts using a cloud-based tool.
We can work with you to develop a system for keeping and organizing your receipts to make it very easy.
Ghosting your bookkeeper
When you work with a professional bookkeeper, it is critical to keep communication lines open and flowing. It is to everyone’s advantage that you and your bookkeeper are on the same page regarding your business finances to prevent errors from occurring.
One of the mistakes that we see most often is someone in the business using the business accounts for something, like reimbursing an expense, making a purchase, or paying a bonus, and not communicating that with the bookkeeper.
All of these things are bookkeeping activities that should be communicated with your bookkeeper. Not doing so can lead to complications when it is time to reconcile your books or file your taxes.
You’ve hired a bookkeeper to make sure your accounts are well organized, make sure you communicate with them so that the uses of your business finances are relayed and understood.
Trying to do your own bookkeeping
Much like hiring an inexperienced bookkeeper, many businesses try to do their own bookkeeping.
We consider this a mistake because the time and effort it takes to handle the tasks that a professional bookkeeper would handle could be extensive. That time would be better used on efforts around growing your business and delivering what your company provides to your clients.
Part of a bookkeeper’s job is to keep current with all tax law changes. Consider a situation where tax law changes, and you might not be aware of it.
You could put yourself at financial and legal risk by not following the new tax laws. Having a professional bookkeeper who works closely with a CPA can help mitigate that risk.
Ultimately, we want you to focus on your job and your business and your clients. By letting us focus on our job, bookkeeping, you can do just that.
One of the complaints we hear the most from our clients is that account reconciliation is tedious and time-consuming. Because of that, most business owners or their staff avoid reconciling their accounts.
We have found that when people put off the reconciliation process, it takes longer to do, say, a year’s worth of reconciliation than if you had just kept up with it.
We all agree that reconciliation of accounts is essential, and we love to reconcile accounts. Instead of avoiding account reconciliation, work with a professional bookkeeper who will get it done for you.
As professional bookkeepers with years of experience, we understand that your finances’ high levels of organization are essential. Having things accurately categorized allows everyone to have a clear picture of the economics of the organization. But when items become improperly categorized, the financial picture is anything but precise.
The improper categorization of income or expenses, or having the wrong categories altogether, creates chaos in your finances. Resolving these issues can be incredibly time-consuming and expensive for you if you ignore these problems.
An experienced bookkeeper can quickly spot improper categorization and resolve it before it becomes a problem. Avoiding those kinds of headaches is worth the cost of hiring a professional, to begin with.
Bookkeeping Mistakes – Wrapping things up
One of the fascinating things about these prevalent mistakes is that they could all be avoided by working with an experienced, professional bookkeeper. It’s not necessarily your fault if you make these mistakes, you probably didn’t know that you were even making them.
What is essential, however, is fixing the bookkeeping mistakes that exist and preventing further errors from happening. That’s where we come in.
Give us a call for a free strategy session, and let us show you how we can make your bookkeeping nearly effortless.