12 Common Bookkeeping Mistakes Made by Startup Founders

A bookkeeper will be able to prepare everything properly for you. But it’s not really their job to make predictions and provide you with a financial analysis. On the other hand, an experienced CFO can help you with both long-term and short-term financial decisions and forecasts. Properly keeping track of your financials is only one aspect of bookkeeping. You also need to understand how to read and analyze those reports that have been generated by your bookkeeper. This is arguably the most common mistake that I see when I’m consulting with new business owners.

Otherwise, small errors can turn into big problems for you. You need to go through each line of transactions in your books to make sure they match your bank statements. For example, let’s say you get paid via PayPal and then transfer that balance into your checking account. The software may report this transaction as income because it looks like a deposit. It’s your responsibility to make sure that it’s not being reported twice, or it will cause major problems with your bottom line. Instead, these payments need to be made to an “owner’s draw” equity account.

Mixing business and personal spending

XBert is an easy-to-use, powerful Xero add-on for business owners, finance teams, bookkeepers and accountants to stay a step ahead in business. If you’re serious about business success, sync your accounting data with XBert. In minutes, you’ll know the amount of money at risk and how to prevent losing it. With most accounting software, you can set up certain “rules” that tell it to categorize expenses a certain way automatically. The mistake some business owners make is creating rules that are too vague or specific.

Due to the explosion of eCommerce over the last 10 years, sales tax has become a complex issue for many small businesses. Historically, the mistake they most often made was simply failing to deduct sales tax from total sales, which would translate into lump-sum surprises come tax time. While that’s still true, recent changes to federal law have made sales tax collection more complicated when it comes to online, state-to-state fulfillment. Make sure you and your bookkeeper are familiar with the latest rule changes, so you can remain in compliance and limit your overall tax liability.

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This week, we’ve asked an essential member of our team, our bookkeeper, Carrie Putnam, to share some of her wisdom. Carrie is the founder of Bookkeeping Helpers, Inc. and our personal CFO. She has been our bookkeeper for 20+ years, and we have no idea what we would do without her! She makes it easy for us to stay focused on business while she tracks the details. Doing your own bookkeeping as a small business owner can be confusing — and it can lead to mistakes. 💻Learn more about the best accounting software for small businesses.

Yet I see so many entrepreneurs try to handle all their accounting and bookkeeping efforts on their own. Using a bookkeeping app like Easy Books makes digital bookkeeping straightforward. When you look for one, make sure it includes the relevant features that you’ll need. You don’t want to overpay for features you won’t use and may not properly understand. You can avoid this situation by opening a dedicated business bank account early on.

On the other hand, incorrect data entry might result in an overstated sales tax and an amount higher for total sales. But are you worried about your messed up business bookkeeping? But fortunately, bookkeeping errors can be easily solved if you catchup them timely. Finally, the fifth most common of the bookkeeping mistakes we see small business owners make is thinking they can handle their books all on their own. Another bookkeeping mistake small business owners often make is not organizing their records.

Why Missing Out on Deductions Is a Bad Move

And many of these can be avoided by hiring a professional to commit to bookkeeping regularly. With the rise in eCommerce, sales tax has become a complex issue for many small business owners. Initially, the only mistake was failing to deduct sales tax from the total sales amount. However, with the recent changes in the rules of digital goods sales, tax collection has become even more complicated.

In addition, do a regular analysis of records, address potential risks, and establish a protocol to control the non-essential payments. Improper management of money will cause the flow of it like fluid and this happens to small businesses the most. You will get no idea where all your profits have been expensed.

If you do not want to do it manually, you can use a software tool that can accurately track and record reimbursable expenses for you. Bookkeeping is a complex and time-consuming process, and most business owners don’t have the skills or knowledge necessary to do it properly. This often leads to bookkeeping mistakes that can cost businesses a lot of money in the long run. Some small business owners run their personal and business income and expense thru one checking account.

• Some of the most common ones are not understanding your accounting software, recording funds incorrectly and overcomplicating your chart of accounts.
• This process, which compares your bookkeeping records to your bank statements, helps ensure that your bookkeeping records are accurate and up-to-date.
• You are less likely to let an accounting mistake slip through the cracks if you have someone else reviewing your books.
• Professional bookkeepers not only help maintain records of financial transactions but can also suggest what you can do to manage finances better and increase profitability.
• The mistake small business owners make is recording those transfers from one bank account to another as expenses and/or revenue.
• But if you wait until your shoebox is overflowing with receipts, and your guilt forces you into a bookkeeping binge, there are some serious consequences.

And if they lack accounting skills, the results may be crippling for your small business. The cloud infrastructure has made it easy for business owners to go paperless and access their business from any part of the world. The data is available 24/7, and there’s no need to keep a hard copy of every aspect of your business. Reimbursable expenses are the ones that you make on behalf of your client. Since they can be charged back to the client, most business owners fail to mark them in their expense diary.

How A CFO Can Help With Cash Flow Management

We can set you up with an easy-to-manage system so you stay up to date, or we can do it for you. Set up separate bank accounts for business and personal funds, and deposit all your business income in the business bank account. Get a business credit card and use it to make business purchases. Finally, miscategorizing transactions can get you in trouble with the IRS.

And if it seems like you’re always stuck on this task, it’s very likely that you’re using a bookkeeping system that’s not tailored for your business. Make sure to re-evaluate your expense categories regularly, update them if needed, and always double-check your work. If this responsibility becomes too overwhelming or confusing, it is a good idea to contact a professional bookkeeper or accountant for help. If you’re making a lot of purchases, you can use your receipts to make sure you categorize your expenses correctly. Reconciliation is the process of lining up your books with your bank statement. It consists of accounting for any differences between your bank transactions and your books.

Then propeller industries be able to spend more time focusing on your business growth, rather than trying to fix problems in your accounting department. Doing reconciliations on a monthly basis is the best way to find errors quickly. It’s more reasonable to go through a month’s worth of transactions, as opposed to a year.

• That way, your books will be much more organized and easier to maintain.
• If you need help with this, my company offers this service.
• When the two accounts are mixed together, it will become difficult to conciliate them with tax deductions and bank statements.
• Obviously, receipts and statements and all related documents are needed in case of an audit.
• That could mean hiring a local bookkeeper or using an online bookkeeping service like Bench.

An audit trail is a set of documents that confirm the transactions you record in your books. When you record transactions in your accounting books, you base the entries on your company’s purchases, sales, and expenses. One of the most important things to do is to be sure that you’re not overestimating the amount of money you made or lost.

However, if you’re doing your own bookkeeping, please remember to always do your taxes, even if you lost money that year. Fittingly, small business owners often focus on the big stuff — the most important things to keep the business moving forward. This strategy is less helpful when it comes to bookkeeping. If you’re being audited, you will need to produce receipts for all expenses, no matter the size. In case you do not have enough knowledge of formal bookkeeping or someone you hired lacks the knowledge for the same can become a big problem.

One of the top reasons why startups fail is because they run out of cash. According to a recent study, 29% of startups cited cash problems as the reason why they went out of business. Unless you’re able to do all of the above with confidence, invest the money and hire a pro.

Next, if you’re concerned you won’t have your tax return ready on time, prepare to file for a federal tax extension. It’s better to fill out the form and file the extension before you miss the due date, so you aren’t charged tax penalties. But all too often, entrepreneurs leave taxes to the last minute. After slacking off on bookkeeping duties throughout the year, their books are in shambles. So, when the time finally comes to file, they’re left scrambling. Besides mental and emotional stress, this approach has some serious negative consequences.