I'm sure small business owners can relate...nobody really wants to focus on bookkeeping. It's boring, tedious, and it's not what you signed up for when starting your business. But this also becomes a trap I've seen with clients. 

"I'll have my spouse help me with the books."

"We just don't worry about it as long as we see money in the bank account." 

The problem is that what seems like a small issue in the beginning, becomes a snowballing problem when it comes to tax time, when you try to apply for a loan, or even just monthly assessments of where you stand as business. And as you try to get caught up in the books, you may realize that you're causing even more problems unintentionally. 

Of course, I'm always going to advocate for working with a certified professional that can help you with your bookkeeping, but if you decide to do it on your own, here are 5 common mistakes that I see that you can avoid. 

1. Not Keeping Accurate Records

The first one is the most obvious, which is to not keep accurate bookkeeping records at all. I work with a client that came to me at first without any bookkeeping records, and they had been in business for 3 years. They had tried to use QuickBooks on their own, but one accidental use of "rules" in QuickBooks messed up the entire system for them. From then on, they just hoped that they were bringing in enough money to cover their expenses. 

When it came to tax time, they had no records in place, so they spent hours away from their business in order give the accountant as much information as possible to put together a tax return. When I started working with them, I realized that they missed on several tax breaks because they didn't have proper records on time. 

The solution for this business was simple. Using a bookkeeping software like QuickBooks can seamlessly keep track of your finances, and make sure that you're profitable at the end of the month. Of course, you need to know how to fully utilize the system, but a system needs to be in place at a minimum to make sure that you're business is thriving. With a system like QuickBooks, you can also save time tracking expenses by connecting your bank accounts and automatically importing transactions. 

2. Mixing Personal and Business Finances

This is probably the one mistake that will get you in trouble with the IRS the fastest. 

When you form a business, you'll often create an LLC or S Corp. These classifications help protect you and your personal assets, and keep them separate from your business activities. 

However, these classifications only help you if there is a clear delineation between personal and business. What I see many new business owners do is utlize their business as an ATM. If they need to pay for groceries or their mortgage, they use the company card to make the purchase. 

If the IRS were to see this, then the lines start to blend in terms of what is considered a business and what is considered a hobby. When paying yourself through your business, keep things separate. Transfer money directly to your personal checking account. This would be classified as an Owner Draw in your books, and it eliminates any questions when it comes to tax time. 

3. Failing to Reconcile Bank Statements

Most business owners that do their own bookkeeping will know to record their expenses and keep track of the income that hits their bank account. However, this is usually where it stops. 

What many may not realize is that every month, there is a final step that ensures the accuracy of your books. This is where you reconcile your books. If this isn't done on a regular basis, you'll soon realize that your bank and your books  do not match, which means that your financial reports will be inaccurate. With innacurate reports, you can't make sound business decisions. 

Using a system like QuickBooks makes this easy, but essentially you download your latest bank statement, and make sure that what you recorded in QuickBooks for the month, matches what hit your bank statement for the month. If it matches, congratulations, you recorded everything for the month accurately! If it doesn't match, then it's a good thing that you caught it now. You can go through your books for the month to see where you didn't include a transaction, or maybe something was categorized wrong. 

4. Overlooking Tax Obligations and Deadlines

Until you're a business owner, you don't realize how many taxes you get hit with on a monthly, quarterly, and annual basis. While most people deal with their 1040 on April 15, businesses like S Corps have an even earlier dealines. Also, most businesses pay state taxes that individuals do not have to pay. 

Basically, it's a lot to keep track of. But if these deadlines are not monitored closely, I've seen clients come to me with over $90K in tax liabilities. This was all because they didn't realize everything that they had to pay. 

My recommendation is always going to be to partner with a bookkeeper and tax professional to stay on top of this for you. But if you want to go solo, most state Departments of Revenue will give you notifications when something is due. Granted, they have many taxes that do not make sense, so calling the department for explanations on things will be the most helpful. 

5. failing to plan for future expenses

Bookkeeping is not just about keeping track of what's happening now. The reason why it's important is so we can plan for the future. 

With accurate books, you can see trends in your spending and your income. Do you have a big tax bill coming up in the next quarter? Do you know if you have the funds to pay it? 

Also, all business owners want to grow their business. That's a big reason why we all became business owners, so we can have better control over our financial future. In order to grow a business, it often takes investment dollars. Accurately forecasting your financial pictures several months from now can help you determine if you're ready to make a big investment. That investment can even be if you're ready to hire on another employee. 

Conclusion

While many view bookkeeping as a tedious task, it's a necesary task to make sure you have the ability to grow your business and take care of your family. I view it as a starting point to really start to plan and forecast where I want to take my business. 

While these are only 5 common mistakes that I see, bookkeeping is not always straightforward, and mistakes do arrise. That is why I'd recommend contacting a professional if you need assitance getting your finances back on track. 

If you're interested in working with me, I'd love the chance to learn more about your business and see how we can partner. Feel free to schedule a meeting with me using my Calendly link here.