When I started my business, I asked many entrepreneurs what their pain-points were when it came to working on their books. Their answers boiled down to a few things: it’s overwhelming, because they’re not sure if it’s right; they’re afraid of getting audited and fined; and they just plain don’t want to do it. Unfortunately, it’s not going to do itself! But I did outline 9 Bookkeeping Mistakes and How to Fix Them. I didn’t leave you hanging with just a list! There are some recommendations with each one on how to avoid or fix it.
Here are 9 common mistakes that could be costing your business money.
1. Mixing business and personal expenses
If you already have separate business and personal accounts, way to go! That’s the first step in reducing the amount of time it takes to do your books. No more sifting through one account trying to remember if that coffee was with a potential client or a special trip with your kids.
What are the correct steps to take to reimburse yourself or your business, if it happens? First, you need to have a record of the transaction, aka the receipt. Then, fill out an expense reimbursement form. Even as a solo-prenuer! You can find templates in Excel, it doesn’t have to be fancy. Last, use a check to make the money exchange with notes in the memo. The idea is to make it easy to track. If you are ever audited, you’ll have to explain and justify every move of cash between your business and personal accounts. Having a paper trail will make that so much easier!
2. Not reconciling bank accounts
Reconciling your accounts means matching your bank transactions with the records in your accounting system. Your accounting system could be a spreadsheet or a cloud accounting software, like QBO; either way, make sure every transaction in that system is on your bank statement.
This will help you with a few things. You’ll notice mistakes. Systems aren’t perfect. Even fancy software, like QuickBooks is liable to make mistakes now and again. Checking on this each month will reduce headaches later, when have to go back and figure out what went wrong.
You’ll stay on top of your cash flow. Having cash is essential to having a long term business. Knowing what is in your account each month will help you plan your spending. Spend too much and there will be additional fees. I don’t know about you, but I hate paying for penalties!
3. Thinking net profit equals cash flow
Profit is not the same as cash flow! Profit is what is left over after factoring in expenses. Cash flow is money in your bank account. Having a profitable business does not guarantee you will have cash in your bank account. The opposite is true too: having cash on hand does not make you a profitable business.
Knowing there is a difference is important! Stay on top of both. Track your cash flow, by looking at your bank account. Track your profit by subtracting expenses from income. Monitor the trends of both to get the most financial data to be able to plan ahead.
4. Failing to take your books seriously
Your books are more than just prepping for taxes. They are a key piece of the strategic planning of your business. Not factoring in finances when you make a decision is hurting your business. You’re not acting as the CEO. You cannot have an effective business strategy without considering money.
Commit to keeping them up to date. Add the task to your calendar at least once a month. Then, start looking at trends. How does income fluctuate in a 12-month period? How do expenses fluctuate in a 12-month period? Considering those two things to start will help you plan ahead and keep you from falling into a cash flow rut.
5. Not having a budget
This is big! Budgets allow you to plan your money. If you don’t have a plan for your money, then it’s all negotiable. You’ll end up wondering where it all went. Sound familiar? Don’t look at a budget as restrictive, but as a guide. You can change it at any time and move things around when the need arises.
Start a budget by looking at past expenses. Where and how much are you spending money? Use that as your guide for each month and compare it to your income. If your expenses are over your income, you may need to make some adjustments so you continue to have cash flow necessary for business operation.
6. Wasting time
How long does it take to get your books up to date when you sit down to do them? Each minute spent here is time away from money making aspects of your business. As CEO of your business, where is your time best spent? Probably not working in the weeds of numbers, that isn’t making you any money.
Automate as much as you can. Use an accounting software, like QuickBooks Online. Consider hiring a bookkeeper. The really good ones are worth their weight in gold!
7. Not looking at Financial Statements
Would you go on a road trip without Google Map? No way! Financial Statements are the road map for you business. They guide you to your destination so you don’t get lost along the way.
The statements every business should be looking at are the Balance Sheet, Income Statement and Statement of Cash Flow. You can easily create these reports in an accounting software. Look at them each month. Compare each quarter. You’ll start to see trends that will give you insight to the health of your business and help you plan for the future.
8. Not admitting you don’t know what you don’t know
There is so much to bookkeeping! It is possible to have countless areas where mistakes can be made – that you may not be aware of. If you find a mistake, do you know how to fix it? I can buy a power drill at the hardware store, but that doesn’t make me a carpenter. You have an accounting system, but that doesn’t make you a bookkeeper.
The biggest things to look for are how you are categorizing your expenses and employees, if you have them. Find a bookkeeper who will do a free call with you, just to verify you have it right. Miscategorizing these things could lead to a bigger tax payout. Or worse, fines from the IRS. EEK!
9. Trying to DIY
Doing it yourself when you not 100% sure, is risky. Many entrepreneurs want to save money by doing it themselves. But what is the cost if you are audited and fined?Your time is money. An exceptional bookkeeper will not only give you more time and find you more money but help you strategize so you can grow your business, or reach whatever your next business milestone is. They are like a money guide so you can plan to keep your business going for the long haul.
If any of these resonate with you, pick one to start with. Pick the one that will have the biggest impact on your business. Don’t overwhelm yourself with figuring out how to fix it all at once!
If you choose to hire a bookkeeper, find one that works in your industry. They’ll give you the most bang for your buck and know the ins and outs of how your money should look at your stage in business.
Meet The Author:
I am Jessica, a Bookkeeping Professional and CEO of Wholesome Bookkeeping. I help women-owned, service-based businesses get their taxes tied up in a neat little bow, so they can use their brain power elsewhere. I have over 5 years experience in the finance realm and firmly believe that managing and understanding your finances is the way to a profitable and sustainable business that will support your personal life. I am Mama to two energetic kids, I love coffee and pancakes, and enjoy exploring the mountains with the family anytime we get a chance.
If you want to reach out to Jessica you can find here –> HERE <–