Many small businesses are a one-person show. As an entrepreneur, you’re responsible for being the face of the organization, and for all of the work happening behind the scenes. Often, being busy means small details and errors can go unnoticed, causing bigger problems with your bookkeeping down the line. We wanted to share the most common bookkeeping mistakes so you can learn from them without making these same mistakes yourself.
Here are five common things that business owners overlook when doing their own bookkeeping.
1. Mixing business and personal
Although running your business is a big part of your life, when it comes to your finances, you still need to treat it as something separate from you. Specifically, this applies to your bank accounts and credit cards. Failing to do so will make it hard to figure out which expenses are business-related and deductible from your taxes.
Even if you have separate accounts for business and personal, be cautious when you use personal funds to pay for business expenses. You might forget to account for the expense and miss out on tax savings! That's why it's very important to categorize your business transactions as well.
Consider searching for a business bank account that specifically caters to small business needs so you have all the tools you need to help get your books in order.
2. Bookkeeping without a bank connection
Once you’re all set up with a separate business bank account, bookkeeping for your business becomes easier, as you can use the bank data to keep track of income and expenses. One thing you don’t want to get stuck with, however, is the painstaking and time-consuming task of having to enter your bank data manually.
Human error from manual entry can cause other business issues (aside from tax preparation) such as forgetting to pay bills on time or mismanaging payments from customers.
Using an accounting software that connects to your bank digitally eliminates the bulk of manual entry, and makes tracking sales and expenses much more efficient.
If you’re looking for a bank account that eliminates the headache of manual bookkeeping tasks, Wave Money includes a business bank account with built-in bookkeeping that will save you time and effort while also ensuring you’re ready for tax time.
3. Using accounting software incorrectly
Accounting software can definitely help simplify the organization of your finances. But if you’re not using the software correctly, you can leave your books open to errors. Aside from that, not knowing how to use all the features efficiently results in time wasted, which could have been spent on other parts of your business, or with your family.
Many accounting software companies, and even some accounting and bookkeeping firms, have a collection of resources and professional service teams to help teach you bookkeeping basics and how to implement them as you’re running your business.
Finding a software that combines your accounting and business banking needs will help ensure your books are always accurate and that you’ll have instant access to your money
4. Hiring a bookkeeper that doesn’t know your needs
One way to avoid some of the bookkeeping work is to outsource the task altogether. However, this can be a costly mistake if the person you hire does not understand basic accounting and bookkeeping concepts such as cash vs. accrual basis of accounting, or how to perform a reconciliation.
Hiring a bookkeeper with relevant accounting education and industry experience is money well spent.
Aside from the basics, a bookkeeper is someone who you should be able to trust to help you grow your business. Some bookkeepers, even with education and experience, can do what you tell them to—handle the daily tasks and run reports—but may not know your business as intimately as you do.
A better investment would be to have someone more specialized, who can dig into your books and give you proper advice and guidance. A lot of business owners focus heavily on cost when they make hiring decisions—as they should, since cost is an important component. However, it’s just as important to make sure that the person you hire to do your bookkeeping is reliable and will do things right.
5. Waiting until the last minute
Since bookkeeping is a collection of small but numerous tasks that build up over time, it can be tough to tackle all at once. Leaving it to the last minute can cause stress and even anxiety, which can sometimes lead to significant mistakes in your books.
It’s understandable, as accounting might not exactly be the most interesting part of running a business. That’s probably why some business owners choose to do it only when financial reports are required.
The best thing you can do is set aside some time throughout the year to complete your books. Perhaps an hour every month for your accounting when you receive your monthly bank statements. That way you’re spending an hour every month, instead of full days before a deadline making sure your books are accurate.
Another reason to do your books throughout the year is so that you can get to know your finances, and make better business decisions.
Take the time to invest some time in your bookkeeping today, and your future self with thank you!
About Wave Advisors
We built our software to empower you to own your finances. Then we built Wave Advisors to lend you a hand if you’re looking for one-on-one coaching for your bookkeeping. We also take it off your hands completely if that’s your preference.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.