5 Common Bookkeeping Pitfalls and How to Avoid Them

5 Common Bookkeeping Pitfalls and How to Avoid Them

Although most entrepreneurs recognize the importance of careful financial management, few want to spend their time dealing with numbers. Unfortunately, not keeping a close eye on your income and expenses can be very costly for a business.

Here are 5 common bookkeeping pitfalls and some simple tips for getting back on track.

1. Mixing business and personal

All too often, entrepreneurs adopt a “buy now – sort later” approach to expenses, using the same credit card for personal and professional purchases. At the end of the month, they’re left poring over statements, trying to sort things out. Mixing business and personal expenses costs extra hours of bookkeeping each month, and muddies your overall financial picture. Avoid this pitfall by using a separate credit card and bank account for business, and by being disciplined about separating expenditures

2. Neglecting to track reimbursable expenses

Receipt-tracking is a necessary part of business ownership. You need to keep track of receipts to understand spending patterns and effectively manage your company’s finances. And if you want to claim deductions at tax time, you’ll need to submit receipts along with your tax return.

But far too many business owners take a haphazard approach to collecting and organizing receipts—especially while on-the-go, where a whopping 50% of their expenses are generated. Get the deductions you deserve and simplify tax prep by using an expense-tracking app. options like Expensify and MileIQ can record mileage, billable hours, and other expenditures, as well as generate expense reports. Plus, many of these apps sync seamlessly with your business bank account and accounting software.

3. Not taking advantage of technology

Are you still relying on manual accounting methods? While basic spreadsheet tools can get the job done, they leave the door wide open for human error. Mortgage loan giant, Fannie Mae, once uncovered a $1.1 billion error on their Excel spreadsheet, citing “honest mistake” as the cause.

What’s more, manual methods simply can’t match the technological benefits offered by software like QuickBooks, Freshbooks or Xero. These systems track invoicing, link with your credit card and business account, organize expenses, and generate insightful financial reports.

4. Not keeping books up to date

Let’s be frank. Most business owners don’t look forward to that weekly appointment with “the books.”  In fact, many entrepreneurs cite bookkeeping as their most dreaded responsibility and will find a host of reasons to avoid it.   Once you get behind on your books, it just gets harder to catch up. 

5. Doing it all yourself

It is completely understandable for budget-conscious entrepreneurs to try to cut costs by handling bookkeeping on their own. However, taking advantage of professional help, even on a part time basis, can generate substantial savings of time and money over the long term.

Time to get savvy about bookkeeping.

The biggest pay off? Avoid these 5 common bookkeeping pitfalls and save time with these bookkeeping tips.  Doing this will allow you to invest your talents and energy where they will be most profitable.

3 Proven bookkeeping tips for small business

3 Proven bookkeeping tips for small business

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On average, small business owners spend 10 hours each week recording, organizing, and processing financial transactions – everything from accounts receivable and payable, to employee payments, expense receipts and supplier invoices. While the process may be time-consuming (and tedious!), effective bookkeeping is the foundation of sound financial management – which in turn, is the lifeblood of your business.

Feeling overwhelmed by mountains of paperwork and complex calculations?

Here are three proven bookkeeping tips for small business to help ensure a healthy financial future.

#1 Faithfully track expenses

Accurate and consistent expense tracking is crucial for claiming tax deductions and lowering your overall tax bill. Plus, analyzing expenses can offer crucial insights into spending patterns and the overall profitability of your small business. Small business owners should consider using a mobile app for simple, consistent expense tracking. Options like AutoEntry and HubDoc help do away with manual data entry with automated functions, including:

 

  • Receipt data capture via your smartphone’s camera (no need to hold onto paper receipts, which can get lost or misfiled);
  • Synchronization with your phone’s GPS to track mileage of business travel; and
  • Importing bank and credit card data, plus integration with accounting software.
Track your expenses

#2 Systematic Invoicing and filing

Keep up to date with filing

Accurate and consistent expense tracking is crucial for claiming tax deductions and lowering your overall tax bill. Plus, analyzing expenses can offer crucial insights into spending patterns and the overall profitability of your small business. Small business owners should consider using a mobile app for simple, consistent expense tracking. Options like AutoEntry and HubDoc help do away with manual data entry with automated functions, including:

 

  • Receipt data capture via your smartphone’s camera (no need to hold onto paper receipts, which can get lost or misfiled);
  • Synchronization with your phone’s GPS to track mileage of business travel; and
  • Importing bank and credit card data, plus integration with accounting software.

By law, every business is required to keep organized and timely financial records. However, manually posting income and expenses to ledgers and journals is time consuming – not to mention stressful for the math-averse. Shave some time (and stress) off your weekly bookkeeping with an all-in-one accounting software solution like Xero and QuickBooksOnline, or FreshBooks. Online bookkeeping offers numerous advantages, such as:

 

  • Instant reports and real time insights on profits and loss, customer accounts, payroll – and your overall financial “big picture”
  • Simplified data entry so you can collate and print invoices, purchase orders, and payroll much faster than with manual methods.
  • Improved accuracy through automation (once data is entered, the software handles all subsequent calculations and processes – including invoicing).
Small business problems

When it comes to accounting, vigilance is the key to mitigating risk and ensuring the long term profitability of your small business. Be sure to set aside time each day, week, and month to update and review your books to catch any red flags and ensure your finances are on track. 

Have you read all of our proven bookkeeping tips for small business? Need more help?

4 questions you should ask your accountant

Ideally, you and your accountant are more than just “adviser” and “client”. With your combined skills, expertise, and shared mission to support a thriving business, you’re more like strategic partners. The key to achieving success in any partnership is, of course, strong communication. At your next meeting, be sure to ask your accountant these four important questions.

1. What's my best strategy for increasing revenue?

Every business owner strives to improve profit margins – but the best way to quickly and/or sustainably grow revenue will vary from business to business.
When reviewing your financials, ask your accountant to pinpoint and suggest smart strategies for driving greater revenue. For your unique company that might mean focusing on new leads, encouraging customers to buy more frequently, incorporating cross-selling or up-selling, and/or re-thinking your pricing strategy.

2. How would you assess our financial performance this quarter/year?

It’s part of your accountant’s job to stay current with your company’s financial statements and reports (i.e. your balance sheet, income statement, profit and loss statement, and cash flow reports).
Some small business owners – especially those who lack confidence in their financial literacy skills – may only want to know the basics, in simplest terms. Let your accountant know you’d like a more thorough analysis of your finances when you next meet, and help understanding what the numbers mean.
Ask for key ratios, like your gross profit percentage, and an assessment of the big picture, drawing comparisons with past performance as well as trends in your industry.
Also ask for any insights your accountant might have into the reasons for new or surprising developments, and what you can do to correct areas where your business is falling short – as well as what actions you can take to continue any positive trends.

3. How can you help me grow my business?

Your accountant should be prepared to offer professional advice to help your business expand and grow over time. Scaling a business can be tricky as it requires a company to do everything it must to keep their customers happy while adapting to change – such as new staff and new systems to accommodate a greater volume of customers. Financial systems may need to change as your business expands; likewise, your company’s financial management may need additional support as you transition to a larger company.
Ask your accountant how you can best work together to facilitate smooth, sustainable growth with minimal disruption to operations, and for tips on how to successfully scale based on past experience with other small business clients.

4. What are your most successful clients doing?

Chances are your accountant serves as a trusted advisor to a number of clients – and therefore, will be privy to the inner workings of companies who are struggling and others who are thriving.
Neglecting to ask your accountant about their clients’ success stories is a missed learning opportunity. Even if a business has little in common with yours – operating in a different industry, or as a seller or products versus services – there’s value in learning what yielded impressive results for another company.
Alternately, you might ask your accountant how their clients overcame challenges similar to yours to help you brainstorm possible solutions.

Final Thoughts

Your accountant is an incredibly valuable resource for your business – and not just at tax time. Be sure to check in every quarter so you have the up to date financial info you need, and your accountant’s professional advice when it comes to making key business decisions.