As a small business there are many bookkeeping mistakes you just can't afford to make. A small mistake can mean a minor setback in your operations. However, a big mistake could put you out of business. Here are five fatal bookkeeping mistakes you flat out can't afford to make:
Misreporting of income or expenses
When a small business owner takes on the task of bookkeeping on their own I typically see a lot of mistakes. Often I see large mistakes like the over reporting or underreporting of income or expenses. It really is not that difficult to make a huge mistake if you are not 100% sure of what you are doing. As an example, if you don't know how to handle the procedures of invoicing and properly recording payments in QuickBooks you will most likely overstate your income. Likewise, I often see businesses miscode transactions which will either overstate or understate your expenses. The most common example I see is owner draws being recorded as an expense which is incorrect.
Not reconciling all of your accounts
Any account that has a statement beginning and ending balance can be reconciled. This includes bank accounts, credit cards, loans, lines of credit etc. Many businesses not only fail to reconcile all of their accounts, but they don't even reconcile the key business accounts such as the general checking account. Reconciling your accounts is the only way to be sure you have accounted for all of your business activity. It also can help to ensure you have not overstated or understated your income or expenses. Accurate financial statements are crucial to future success of your business.
Not having a CPA in place
I can't stress the importance of having a CPA in place for your business. Your bookkeeper should intimately understand the day to day operations of your accounting, however they are most likely not a tax expert. A CPA will communicate with your bookkeeper to confirm that your bookkeeping reporting is accurate. They will also thoroughly go through your financial records to make sure everything matches your tax return. Your CPA should work closely with both the business owner and bookkeeper to prepare an accurate tax return that also ensures you are getting all the tax deductions you are entitled to.
Not using a reputable bookkeeping software
All too often a business handles their bookkeeping in some sort of offline system. Although excel can work for a simple bookkeeping system it does not support growth for you company. We highly recommend using and learning QuickBooks, as it is a great bookkeeping software for the business owner that does not necessarily understand everything about accounting.
Not using checks and balances
In my eyes many business owners are to trusting and unfortunately this often leads to bookkeeper theft. By installing the proper checks and balances into your bookkeeping system you can be sure your bookkeeper is not stealing from you. A few simple tips are that a bookkeeper should never have the authority to sign checks, use online bill pay or handle cash.
Are you making any of these fatal bookkeeping mistakes or are you are but you don't even know it? Maybe it is time to tighten your bookkeeping system up.