9 bookkeeping mistakes and how to avoid them
Don’t feel bad if bookkeeping is your least favorite part of running a business — you’re far from alone. While tracking expenses and reconciling accounts might not be the most exciting part of entrepreneurship, it's crucial for your success. We've seen countless small businesses struggle with common bookkeeping mistakes that can lead to headaches down the road. Here are nine mistakes we frequently encounter and how you can avoid them.
Putting off bookkeeping until "later"
We get it — when you're juggling multiple responsibilities, bookkeeping often takes a back seat. But those receipts and invoices piling up on your desk won't organize themselves. The longer you wait, the more overwhelming the task becomes.
Instead, try setting aside a specific time each week for bookkeeping tasks. Even 30 minutes can help you stay on top of your finances and prevent a scramble at the end of the quarter.
2. Not reconciling accounts regularly
Reconciliation is like a regular check-up for your business. Without it, you might miss fraudulent charges, billing errors, or duplicate payments. Many business owners either reconcile too infrequently or skip it entirely.
Make it a habit to reconcile your accounts at least monthly. This way, you'll catch discrepancies while they're still fresh and easier to resolve.
3. Ignoring financial statements
Financial statements provide essential insights into your business's performance that you can't get anywhere else. Ignoring them means you're making decisions without key information. We've seen too many businesses make decisions based on their bank balance alone, without considering accounts receivable, payable, or upcoming expenses.
Take time each month to review your profit and loss statement, balance sheet, and cash flow statement. These documents help you spot trends, identify potential issues, and make informed business decisions.
4. Not keeping proper documentation
Ever felt that rush of panic when you can't find an important receipt or invoice? Poor documentation isn't just a headache — it can seriously impact your business during tax season or if you face an audit. We see too many business owners trying to piece together their expenses months after the fact, often missing important deductions or having to guess at details they should have recorded.
Make documentation a daily habit. Create a simple system that works for you, whether that's a digital solution like receipt scanning apps or a physical filing system with clearly labeled folders. The key is consistency — every receipt, invoice, and financial document should have its place. Take a minute to record important details like the business purpose of expenses or notes about client meetings. Your future self (and your accountant) will thank you.
5. Failing to track reimbursable expenses
Those little business expenses you pay for personally can add up quickly. When you don't track them properly, you're essentially leaving money on the table and possibly missing out on tax deductions.
Keep a dedicated log of all reimbursable expenses and maintain clear documentation. Consider using a separate credit card for business expenses to make tracking easier.
6. Miscategorizing expenses
Proper expense categorization isn't just about keeping things organized — it directly impacts your tax liability and financial reporting. Lots of businesses miss out on valuable tax deductions or raise red flags with the IRS due to incorrect categorization.
Take time to learn the proper categories for your industry and create a consistent system for categorizing expenses. When in doubt, consult a professional rather than guessing.
7. Not maximizing accounting software
Small business accounting software can save you hours of work, but we often see businesses using only a fraction of their software's capabilities. It’s like buying a smartphone and only using it to make calls. Even worse, using software incorrectly can create serious problems that take hours to fix — like accidentally duplicating entries or miscategorizing transactions across multiple periods.
Invest time in learning your accounting software's features. The time you invest in learning will pay off in efficiency gains and help you avoid costly mistakes. If you're not sure about a feature, take advantage of online tutorials or ask a professional before experimenting with your live data.
8. Making sales tax mistakes
Sales tax errors can be costly and complicated to fix. Whether it's collecting the wrong amount, failing to file on time, or not understanding nexus requirements, sales tax mistakes can lead to significant penalties.
Stay current with your state's sales tax requirements and consider using automated sales tax software if you sell in multiple jurisdictions. When regulations change, make sure your systems are updated accordingly.
9. Waiting too long to bring in a professional
The number one thing we've learned over years of helping small businesses: it's almost always more expensive to fix bookkeeping mistakes than to prevent them in the first place. We regularly see clients try to save money by trying to manage their own books, only to end up paying dearly for cleanup services later.
Professional bookkeeping is an investment in your business's future, not an expense. We're here to help you set up systems that work for your business and keep your finances on track from day one. Learn more about our small business bookkeeping services.