27 Feb 7 Most Common Mistakes Entrepreneurs Make with Bookkeeping
Bad bookkeeping practices can lead to poor financial planning and potential cash flow problems. It could also result to being audited by tax authorities and slapped with hefty fines and penalties. Ultimately, it could also damage the reputation of the business, affecting key relationships with banks, investors, suppliers, and customers.
To avoid poor bookkeeping, be wary of below common bookkeeping mistakes and take note of the bookkeeping solutions to address them:
Mistake #1 – Combining Personal and Business Funds
This is the most common bookkeeping mistake that entrepreneurs make. Mixing personal and business finances make it harder to determine if a particular expense is a legitimate tax deduction, and it’s difficult to clearly see how the business is actually doing in terms of cash flow and profit.
Maintain separate bank accounts and credit cards for personal and business use, making it easier to track and categorize expenses.
Mistake #2 – Overstating Income
Incorrectly reported expenses lead to higher business income, which is equivalent to higher taxes. It’s even more problematic when you are paying the expenses with your personal money and you are not reimbursing the amount spent.
Never use personal funds to pay for your business expenses. Make sure to keep all the business receipts.
Mistake #3 – Overlooking Transactions
Failure to keep track of all transactions, and record related receipts, invoices, and other financial information will land your business in trouble.
Get a good bookkeeping system going to avoid the costs of not having one. If your bookkeeping is done manually, consider using accounting software such as Intuit’s QuickBooks.
Mistake #4 – Procrastination
A lot of entrepreneurs would wait up until the last minute to do the bookkeeping. Procrastination will only result in falling behind on the books, losing track of profits, and possibly missing tax deadlines.
Stick to a schedule for bookkeeping and make it a habit. Create a system that will make updating your books quicker, such as accumulating receipts in a box for easier data entry during your scheduled bookkeeping time.
Mistake #5 – Getting lost in Cash Reconciliation and Accrual Statements
Not all entrepreneurs are familiar with cash reconciliation and accrual statements, but this is not an excuse.
Try to spend extra time and money learning the basic concepts at least or you may hire someone to do this for you.
Mistake #6 – Inaccuracy in Data
Accuracy is the most important part of bookkeeping. Any mistake in data entry will be detrimental to your financial reporting, especially if left undetected.
Learn the accounting concepts and implement rigorous reviews and checks and balances to make sure any inaccuracy will be detected and corrected right away.
Mistake #7 – Not Seeking Professional Help
Entrepreneurs need professional help. Even if they are experienced in sales, it doesn’t mean they are proficient in accounting.
Be honest. If you cannot do the bookkeeping alone, then don’t hesitate to hire a professional.
Bad bookkeeping leads to bad business decisions. Rethink your practices and avoid committing these bookkeeping mistakes.