6 Bookkeeping Mistakes That Cost You Money

17 Feb 6 Bookkeeping Mistakes That Cost You Money

Owning a small business is no easy feat.  The small business owner often handles the day-to-day operations, sales, marketing, and ensuring business growth and profitability.  It is easy to understand how small business owners can become overwhelmed.

Last, but certainly not least – unless you are also an accountant or a trained full-charge bookkeeper, the bookkeeping can be time consuming and stressful.  And bookkeeping mistakes can be costly!

These are some common bookkeeping mistakes that may be costing you money and time:

1. Trying to do everything yourself- including bookkeeping.   Bookkeeping is a skill that takes years to fully master.  The small business owner may think they are saving money by doing the bookkeeping themselves or delegating it to a trusted friend or relative.  But outsourcing your bookkeeping can save you time and money over trying to do it yourself.  A professional bookkeeper can end up saving you money by providing you timely and accurate financial data you need to run, grow, and nurture your business.  The time you spend doing your own bookkeeping is better spent on obtaining new customers, improving the efficiency of your business, improving your technology….a thousand more profitable ways to spend your time.
2. Not reconciling the books and your statements every month.  Bookkeeping is the proper recording and reconciling of all the transactions that run through your balance sheet accounts – bank accounts, credit cards, loans, owner capital contributions,….  Reconciling those accounts on a regular, consistent basis ensures all the transactions have been recorded.  Missing this key step in bookkeeping can result in crucial errors and a loss of tax deductible expenses.
3. Not properly accounting for sales tax.  If you run a business that has products or services that are subject to sales tax you need to record the sales tax portion of the sale separately from the rest of the sale.  If you fail to do this the result is a inflated sales numbers, inaccurate sales tax return filings and possible underpayment penalties.  Knowing how to use your accounting software properly, including using the invoices and sales receipts forms to record sale and paying your sales tax properly in the software, will ensure you have filed returns correctly, paid the proper amount of sales tax and have accurate sales numbers for your reports.
4. Not knowing how to categorize your expenses.  At first glance coding your expenses and other transactions may seem pretty basic.  Often times though, transactions are entered into the wrong categories or you end up creating too many unnecessary categories.  Proper transaction coding takes into account the tax consequences of the expense, whether they should be coded to balance sheet or profit and loss accounts, and the reporting goals of your management team.
5. Not keeping your records current.  As stated above, at least, monthly reconciliation is essential for accurate bookkeeping.  More importantly though, you have to keep your books current.  Regular entering and classifying transactions are the basis of your bookkeeping system.  If you fail to update your system regularly documents can get lost, customer invoicing and payments may not be recorded or collected, vendor bills are not paid (or worse paid more than once) and payments made from owners funds may never make it to your bookkeeping system.  Add spotty reconciliations and you have a recipe for disaster!
6. Not staying on top of accounts receivables and collecting in a timely manner.  This is really simple.  You are in business to make money.  You provide goods and services for a certain price.  You are entitled to be paid!  Regular reconciliation of your Accounts Receivable account and contacting customers ensure that you get paid.  Make sure you make you payment terms known so that your customers know when to pay.

This is just a small sample of the bookkeeping mistakes anyone can make.  Being a small business owner takes a lot of time and money.  Proper bookkeeping can save you time and money.  It’s best to get it right – the first time, and every time!