FREE Shipping on all orders over $30 | Ships next business day

5 Common Bookkeeping Mistakes Small Businesses Make

5 Common Bookkeeping Mistakes

 

Bookkeeping might not be the most exciting part of your business, but it’s certainly one of the most important. After all, bookkeeping mistakes can steal time and money that could go toward growing your company.

Shoddy bookkeeping can lead to all sorts of problems, including messed-up financial statements, inaccurate reports, faulty budgets, and worst of all, unpleasant IRS audits.

Since starting her own bookkeeping business around 10 years ago, Cheryl Gudorf has seen the truth of that statement over and over. As a CPA and CMA, she’s seen a consistent pattern of bookkeeping mistakes small businesses tend to make.

Have you fallen into any of these bad bookkeeping habits?

1. They don’t keep their business and personal books separate.

It’s a bookkeeper’s nightmare to realize that their client has been mixing their business and personal finances.

Why is this such a big deal? Because if the IRS audits you and they find out you’ve been mixing personal and business finances, all your business’ expenses can come under scrutiny.

“The second reason is that bookkeeping has become semi-automated,” says Gudorf. “When you’re using a system like QuickBooks, all your transactions come into bank feeds. If you have half business purchases and half personal purchases all coming through that bank feed, you can no longer automate anything, and bookkeeping becomes an extremely time-consuming process.”

To stay in the clear, business owners should make sure to open a separate checking account and credit card that they use solely for business purposes.

2. They’re not using accounting software to track their books and reconcile their accounts.

QuickBooks, Xero or FreshBooks can all be great accounting programs for small-business bookkeeping. These tools can connect directly with your bank and can semi-automate your bookkeeping.

But no tool is foolproof. Whichever software you use, it’s important that you reconcile your accounts on a monthly basis to avoid bookkeeping mistakes.

Gudorf says she’s seen accounting software delete transactions because they appeared to be duplicates when they were actually identical purchases made for the same amount on the same day. Reconciling your books can catch these mistakes and keep your statements accurate.

3. The owner doesn’t review the month-end statements.

When business owners don’t review their bank statements and credit card statements on a monthly basis, bookkeeping mistakes can get through.

Someone with authority should be checking those statements to make sure each purchase is authorized, especially if employees have access to a company credit card.

With so many subscriptions and software services nowadays, Gudorf also recommends keeping an eye out for recurring monthly charges that might go under the radar.

“People are paying $12.99 a month for this, $14.99 a month for that, and they’re not even using these services anymore,” she says. “So keep an eye out for services that aren’t being used or that you didn’t sign up for.”

The final reason business owners should look over their statements is to check for potential fraud. One of Gudorf’s clients had hired a relative to do their bookkeeping. What the client didn’t know is that this relative was stealing from him.

Each time the client made a credit card payment to the bank, the relative would take the same amount of money a few days later. When the client saw these duplicate numbers, he assumed it was the same transaction—but it wasn’t.

The lesson was clear: Even if you have a friend or family member doing your bookkeeping, make sure to review the statements yourself.

4. They don’t have a trained bookkeeper or an accountant to review the books.

This is one of biggest bookkeeping mistakes. Not having a bookkeeper who knows what they’re doing can cost businesses a lot of money.

Gudorf recalls one client who hired her to review their books because the financials “didn’t seem right.” During the review process, she discovered that the client’s bookkeeper was recording credit card expenses incorrectly. Unfortunately, this meant the company’s tax returns had been wrong for two years.

And this bookkeeper had a finance degree.

“Make sure you have someone who knows accounting looking things over,” Gudorf says.

Even if hiring a trained bookkeeper or accountant costs more per month, their services can save you even more money and stress in the long run.

5. They don’t keep all their receipts.

Legally, the IRS only requires that businesses keep receipts of $75 or more. But Gudorf recommends going the extra mile and keeping any business receipts you can.

The reason is that, if you’re audited, you can show the IRS that you keep receipts for everything. This can make the audit a much smoother process.

You can either keep hard copies of the receipts or you can upload them to your accounting software or cloud-based filing system. All ways are effective, so choose whichever works best for you.

The only downside of keeping hard copies is that sometimes receipts can become illegible after a few years. Uploading receipts can act as a safeguard against the normal wear and tear regular receipts go through.

Gudorf recommends keeping those receipts for at least 3 years. This echoes the IRS’ official recommendation of keeping records for at least three years—or longer under certain circumstances. After all, the IRS usually won’t audit you until two or three years after you’ve filed a tax return.

Need stamps to label your records, receipts, and invoices? Try our self-inking rubber stamps to keep files accurately organized!

Have you made any of these bookkeeping mistakes? If you found this article helpful, share it on your social media!