Are you guilty of committing these bookkeeping mistakes? It’s time to avoid them so you can head on to a successful 2022!
2021 is over, and to say it has been a challenging year may be an understatement for many small business owners. The lockdown orders and restrictions forced businesses to limit operations, putting tremendous pressure on entrepreneurs to keep their ventures afloat.
The new year signifies hope and a fresh start. Although it would be difficult to predict what lies in the future, there are tasks that business owners can still control and take charge of, such as their finances.
Getting a good grasp on the business’ finances helps owners cut down financial costs, properly allocate funds, and make critical financial decisions to minimise risks. Good financial management is essential if you want your business to get out of these turbulent times in one piece – and an excellent way to start is bookkeeping.
Managing your books, although mundane and repetitive it may seem, is necessary if you want to stay on top of your numbers. Only when your records are in order can you measure your company’s financial health, manage it properly, and ultimately position it for growth. That said, let’s look at the common bookkeeping mistakes so you can stop doing them.
Seven Common Bookkeeping Mistakes to Avoid
1. Poor recording of small purchases
Do you always keep track of your business transactions, no matter how small they are?
A meal ticket when you had lunch with a potential business partner, or the receipt when you took an Uber going to a meeting – often, these insignificant purchases don’t make it to the record books. However, these little expenses can mount up and could cause a severe dent in your budget and cash flow.
Make sure to maintain receipts of all your business expenses. You can consider using software that will make it easier to record and manage receipts so you can discard the shoebox where you’re keeping your transactions.
At Cloud CFO, one of our favourite tools to use is Dext Prepare. (Give us a shout if you want to know more about this tool and how you can integrate this with accounting software.)
2. Improperly categorising expenses
A risk of doing DIY bookkeeping or hiring someone inexperienced is improperly categorising expenses. This could be a problem as your business’s financial transactions should be correctly classified so you can measure its profitability. Knowing the tax treatments of each category can also lead to tax savings.
3. Failing to reconcile bank accounts
No matter how full your schedule is, it is your responsibility as a business owner to take time and settle your books with the company’s bank statement each month. Reconciling your accounts will help prevent errors and identify issues before they arise.
Having an expert on hand to help you reconcile your accounts will ensure your accounts are always up to date and accurate.
4. Not maintaining a backup of records
How do you keep your receipts? Do you take a picture of them and then retrieve them when it’s time to do your books? Do you still do your books on an Excel sheet and keep them on your computer? Remember, there is a chance that something could happen to your data. Always keep a backup to prevent losing important files.
A better option is to utilise cloud-based bookkeeping tools to store your data safely.
5. Combining personal and business expenses
If you run a business, you must keep your personal and business finances separate, no matter how small. There are many reasons why you should do this; first is that it is much easier to track your business expenses, so it’s easier to file taxes; second, you will have a clear picture of your business cash flow, and you can keep your books accurate and up to date.
Also, having a business bank account will give you more credibility and establish a higher level of trust with your clients and suppliers.
6. Recording larger purchases as an immediate expense
Suppose you purchased stationeries, printer ink and a bulk amount of paper for your business. Naturally, these purchases are recorded under “office supplies”, which you can then write off.
However, if you purchase a laptop, it should not be categorised as an “office supply” but recorded differently. The computer will be used for a long time, so it should be listed as an asset that will depreciate based on the estimated lifespan of the computer equipment.
7. Spending too much time on bookkeeping
As a small business owner, you know how valuable time is. Remember, “time is money”, so you should hold your time as extremely important. While bookkeeping is crucial for your business, if you spend too much time on it and neglect other important tasks, this could hinder your company’s success.
Bookkeeping is tedious and time-consuming. Doing it yourself may not be the best use of your time, especially if you have many other items to do. Working with a bookkeeper will take this burden off your shoulders and give you more time to focus on what matters most for your business.
Ready to straighten up your bookkeeping this year?
Cloud CFO provides day-to-day bookkeeping services such as bank reconciliations, accounts payables and receivables, payroll, as well as financial controls – all of these, are foundational to the success of your small business.
Get in touch with us today.