So, Let’s dig in. We'll explore some common bookkeeping mistakes. We'll provide you with best practices to avoid. Read through this checklist and ensure your financial house is in order.
Set aside dedicated time each day or week to update your financial records. You can also use accounting software or apps to streamline the process and ensure nothing slips through the cracks. We recommend using QuickBooks online if you're a small business. It allows you to link your bank and credit cards so that this process becomes automated.
Blurring the line between personal and business expenses is another common bookkeeping mistake. It can lead to misreported income and expenses. Don't make it more challenging to understand your business's true financial performance. To avoid this, open separate bank accounts and credit cards for your business.
A common error to avoid is forgetting to reconcile your bank and credit card statements with your financial records. To reconcile your accounts, first, bring up your bank and credit card statements. Then check all the transactions there to make sure they match your records. Make adjustments as needed. Failing to reconcile accounts can lead to errors and discrepancies. You should reconcile your accounts every month. Accounting software can help. The software automates the process and identifies any discrepancies that need your attention.
Cash accounting means you recognize revenue when cash comes through the door. You recognize expenses when cash leaves the business.
Accrual accounting ignores the timing of cash on the P&L. Instead, it focuses on the value you provided vs. the value you consumed in the period. If you're a SaaS company you might collect $120 for a 1-year subscription. In cash accounting, the full $120 is counted as revenue. In accrual accounting, you'd recognize $10 each month until you've provided $120 worth of service.
Losing track of receipts and documents is a surefire way to create headaches during tax season. Ignoring documentation and receipts is a common bookkeeping mistake. Without proper documentation, it's challenging to substantiate expenses or justify deductions. This matters when your business is large enough to get audited. You need to have back-ups for the work you've done.
Misclassifying expenses can distort your financial reports and lead to incorrect decisions. It's essential to allocate expenses to the correct categories. Small miscategorizations won't hurt and exist in all businesses. But, large miscategorizations can be dangerous. Familiarize yourself with accounting categories and maintain consistency in your classification.
If difficult to maintain the above yourself, bring in help. Bookkeeping for a small business can be affordable and save you a ton of time. For small businesses, fractional services like outsourced bookkeepers and cfo services can have a huge impact. Do a quick google search and see if there are any right for you. Take a look at our page: Bobsbookkeepers.com.
By implementing the best practices above you can ensure that your books are accurate. Accurate books will help you make better decisions.
