Top bookkeeping errors and how not to make them
Accurate financial records are the backbone of every thriving business. Proficient bookkeeping is crucial to making well-informed decisions and staying compliant with any and all applicable regulations.
That being said, the inherent complexities of bookkeeping can be overwhelming to say the least.
If you could use a little guidance, you’re in the right place.
Let’s start by breaking down the most common bookkeeping errors, shall we?
Misclassifying revenue and expenditures
Misclassification can skew your financial statements, creating obstacles to effective planning. Accurate categorization of your transactions is integral to reliable financial reporting, budgeting, forecasting, and tax preparation to boot.
Do not: mix personal and business expenditures. Do not: misidentify expenses as assets. Do not pass Go and do not pick up $200. To avoid common oversights, establish a structured chart of accounts designed for your business’s specific needs. Additionally, implementing review processes—including variance analyses—helps to maintain accuracy and transparency in the long term.
Ignoring receipts and documentation
Half-baked record-keeping can lead to audit difficulties and non-compliance penalties. This (not) just in: maintaining comprehensive records and documentation is key to a solid audit trail.
In the event of an audit (it can happen), thorough documentation is the best way to justify expenses and ensure compliance with tax laws. Luckily, digital document management tools can help improve accessibility and prevent the loss of important paperwork.
Attempting DIY bookkeeping without expert support
Self-managed bookkeeping appears super cost-effective, but the reality is that it can expose your business to unnecessary errors—not to mention, missed tax saving strategies. This can lead to financial repercussions.
Consider shifting your perspective: think of professional services as an investment in the financial wellbeing of your business rather than a straight expense.
Overlooking routine financial reconciliations
The secret to on-point financial records is regularly scheduled (i.e., monthly) financial reconciliations. Ignore this and you’re bound to start noticing discrepancies—which, in turn, can compromise both financial analysis and strategic decision-making.
Reconciling your bank statements with your records is a way of identifying inconsistencies, fraud, and unauthorized transactions. You’ll also want to reconcile prepayments, deferred revenues, and other balance sheet accounts. Remember: the longer you wait, the more complex corrections become. Looking to simplify? Accounting software may be just what the doctor ordered.
Mismanaging sales tax
Mismanaging and inaccurately reporting sales tax is very common. For instance, you should never include sales tax in your recorded expenses and revenues. A lack of bookkeeping expertise often leads to errors, as well as lost opportunities for beautifully optimized finances.
Professional counsel from experienced bookkeepers or CPAs is so often the difference-maker, so don’t hesitate. Hot tip: create a dedicated sales tax account to keep your liabilities crystal clear.
As American oil well firefighter Red Adair famously said, “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”
By adopting proactive bookkeeping practices and seeking expert guidance as needed, the dream of a thriving business can easily become your reality.
