When many entrepreneurs first start out, they try to handle their own accounting to save money. However, tracking every penny of income, expenses, taxes and vendor payments is complicated and time-consuming. Mistakes can happen easily — and they can cost your business tons of money.
To help you prevent these financial errors, here are some of the most common accounting mistakes business owners make, and — more importantly — how to avoid them.
1. Lack of organization
Bookkeeping requires great organization skills. You’ll have to record every transaction, store or digitize receipts for future reference, calculate taxes and more. If you’re not properly tracking or storing information, you’ll likely miss an important transaction or lose a receipt, which could get you into trouble come tax season.
2. Not following a regular accounting schedule
With all the other responsibilities you have as a business owner, updating your books might fall to the bottom of your to-do list. However, it’s important to set a regular schedule for adding in recent income and expenses. While daily updates are ideal, you should at least enter your transactions on a weekly basis.
3. Failing to reconcile accounts
While you’re recording cash flow and other financial data in your books, you want to regularly go back and ensure your bank account reflects that same balance. If there’s a gap between the two, there is likely an error that requires immediate attention to prevent the issue from worsening. Regularly reviewing your business bank accounts against your books can also help you catch any fraudulent transactions that may have occurred.
With all the other responsibilities you have as a business owner, updating your books might fall to the bottom of your to-do list.
4. Ignoring small transactions
It’s easy to forget about that small thank-you gift you mailed to a client or the ream of printer paper you picked up on your way back to the office. No matter how insignificant the transaction is, it’s important to record it and get a receipt. In the event of a tax audit, you will need to be able to present the IRS with records of all your business expenses, even the small ones.
5. Not backing up your data
Imagine if the device on which you stored your business’s financial information was lost, hacked or stolen — and you didn’t have it backed up anywhere. These issues can arise at any time, and you need to be prepared to restore your books. Fortunately, there are many backup options available that will enable you to keep an extra, up-to-date copy of your business financials.
[For more on backing up data, Small Business Guide to Cloud Backup and Storage.]
6. Not using an accounting software
If you’re keeping track of your business finances in an Excel spreadsheet or a paper ledger, you may want to consider upgrading to software. Investing in the right accounting software can help you avoid mistakes and ultimately make it easier to handle your finances.
Most accounting software integrates with your bank account, meaning less manual work for you. These programs also make it easy to back up your data in case of an emergency. Additionally, if you end up needing to hire an accounting service for your business, having a centralized software will ensure the accountant has all the historical data they need to manage your books, payroll and taxes.
Whether you’re handling your own accounting or outsourcing to a professional, bookkeeping mistakes can cause major issues for your business. It’s best to prevent and confront these issues before they become more serious concerns.
CO— does not review or recommend products or services. For more information on choosing the best accounting software, visit our friends at business.com.
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