Bookkeeping is all about the details. Every data point needs to be accurate, and every payment, invoice, and filing must be made on time. The margin for error is slim, and financial institutions are unforgiving. Even something as simple as a misplaced period or an extra zero can result in significant losses for your business.
There are innumerable ways to mess up in the world of bookkeeping. But these 5 mistakes are particularly common and costly.
Protect your business’s bottom line by avoiding these 5 bookkeeping mistakes:
Mixing Personal and Business Expenses
You’re slogging through the airport after a turbulent red-eye when you suddenly catch a whiff of fresh-roasted coffee. The sight of the café shimmers like an oasis in the middle of the Sahara. You place your order, and by the time you reach the cashier, you’re already sipping at your precious brew. With everything now right in the world, you fish out your wallet and swipe the first credit card you find. But wait…are you traveling for business or pleasure? And did you charge your cup of joe to the right account?A cup of coffee might not seem like much, but these types of minor expenses can add up. And if you’re consistently mixing business and personal expenses, you risk either losing out on deductions or overdoing them. You’ll either lose money or run afoul of the IRS. Neither of which are good for your business. So, remain vigilant about keeping your expenses straight — no matter how small.
Ditching Your Receipts
Let’s imagine you do use the right account to buy your cup of coffee; but right afterward, you crumple up your receipt and chuck it in the trash. And there goes valuable documentation of your expense! While most banks now offer websites and mobile applications that track your transactions, receipts are still important.
Thankfully, novel services like Expensify and Shoeboxed have made it so you no longer need to squirrel away all those paper receipts. With these applications, you can simply snap a picture of your receipt with a smartphone or tablet, and the digital image will be cataloged for easy reference and retrieval later. And yes, that means you can pitch the paper receipt!
Going Without Backups
Whether your files are physical or digital, you better make sure they’re properly backed up. A lost folder or a corrupted hard drive can result in untold losses for your business if there aren’t any backups to be found. So remember, as is the case with all valuable data, redundancy is your friend.Create digital copies of your important physical documents whenever possible. Also try to save all digital documentation on both local drives and on a cloud platform. Cloud-based backup services like iDrive protect your data against loss by storing multiple copies on multiple different servers. They also provide added convenience by making your files accessible to you from any internet-connected device on Earth.
Skipping Bank Reconciliation
If you’re one of the many small business owners who don’t know what bank reconciliation is, listen up! Bank reconciliation is the process of comparing one’s internal accounting records with those of the bank’s. This is most often done monthly, but can be done more frequently. The goal is to make sure that any discrepancies between the two records can be accounted for. Things like checks that haven’t yet cleared, or pending transfers, can be legitimate reasons for differences between your books and your bank statement.
However, discrepancies can also be caused by things like errors, bounced checks, embezzlement, and fraud. So, if you fail to perform routine bank reconciliations, you risk letting those issues persist and grow over time. Thankfully, software services such as Xero and Cashbook are making it easier for businesses to remain on top of reconciliation at all times.
Not Adhering to a Schedule
A bookkeeper’s work is never finished. Essential tasks occur on a daily, weekly, monthly, quarterly, and yearly basis. And unscheduled events, such as customer disputes and tax audits, can pop up at any time. In order to stay on top of all those to-dos, you’ll need to commit to a strict calendar.
And if you find yourself routinely falling behind that schedule, it’s time to enlist the help of a professional bookkeeper. One of the most common mistakes that small business owners make is underestimating the time and energy required for bookkeeping. As a result, they often find themselves falling behind on payments, making costly errors, or both.
Remember, bookkeeping is an essential aspect of business; and neglecting it is a surefire way to fail. Although this list only scratches the surface, avoiding these 5 costly mistakes is a strong first step toward responsible bookkeeping.