Common Bookkeeping Mistakes To Avoid

Bookkeeping is not always easy. As the owner of a company, you undoubtedly have a million other things on your plate, so keeping your records current and ensuring that everything is true is probably the last thing on your mind right now. If you do not have to spend an excessive amount of time on bookkeeping, then it must be rather simple, right? However, this is not always the case, which is unfortunate.

When it comes to bookkeeping procedures, there are a lot of things that small businesses get wrong, and these mistakes can end up costing them money in the long term.

Bookkeeping and accounting can be a hassle, particularly if you are unsure of what you are doing in either of these areas. When your business is still in its early stages, it is very crucial to develop strong bookkeeping procedures as soon as possible. The following is a list of some of the most frequent accounting errors that we observe occuring in small businesses:

People who need assistance determining whether or not they should handle their own bookkeeping or if they should engage an accountant for this service are the target audience for this article. This article is going to be interesting to people who are interested in learning more about accounting and finding out about the kinds of things that they can anticipate happening as part of the process.

When you manage a company, it is crucial to keep good records, but it is even more critical to do so when you are in the process of buying or selling an existing company. Any inconsistencies in your books (such as evading taxes), regardless of whether they were done intentionally or accidentally, can have severe repercussions, not only for you but also for the firm.

Warnings From Wave Regarding the Five Most Frequent Bookkeeping Errors

It is already that time of year once more: tax season. To put it mildly, it's a terrible experience, and if you're anything like most business owners, you're already pushed for time.

You, as the business owner, are the person who is ultimately accountable for the success or failure of your company. In order to execute this task successfully, it is essential to have clear visibility into your financials and cash flow.

In light of this, we have established a partnership with Wave, a business banking partner of RBC and an Ownr Perk, in order to assist you in saving time and avoiding the aforementioned common errors in bookkeeping. You don't need to worry about anything since Wave + Ownr has your back even though you wear a lot of hats like CFO, CMO, and COO in addition to being the ruler of everything.

When managing their own books, many business owners make one of the following five typical accounting mistakes:

• Combining professional and personal concerns
• Employing accounting software that is not integrated with your financial institutions
• Your accounting software isn't being utilised to its full potential
• Employing a bookkeeper who isn't truly familiar with your requirements
• Leaving the filing of taxes till the very last minute

One person runs many of the nation's millions of tiny companies. As an entrepreneur, it is up to you to be the public face of the company in addition to being accountable for all of the labour that goes on behind the scenes. When you're busy, it's easy to overlook minor things and make mistakes, which can lead to more significant issues with your bookkeeping further down the road. We felt it was important for you to be aware of the most frequent errors that occur in bookkeeping so that you can gain knowledge from them and avoid making the same mistakes yourself.

When keeping their own books, business owners frequently forget about these five important aspects of the process.

Mixing Work and Personal Life

When it comes to handling your money, you should still consider your company to be a different entity from yourself, despite the fact that running your company is a significant part of your life. In particular, this is relevant to your various financial accounts and credit cards. If you fail to do so, it will be difficult to determine which of your expenses are relevant to your business and hence deducted from your taxes.

Even if you keep your personal and professional finances in separate accounts, you still need to exercise extreme caution when using funds from your personal account to pay for company costs. You run the risk of forgetting to account for the expense, which would mean losing out on potential tax savings.

Consider looking for a business bank account that is tailored exclusively to the requirements of small businesses. This will ensure that you have access to all of the necessary resources to assist you in getting your books in order.

Bookkeeping That Does Not Involve A Bank Connection

When you have a separate bank account for your company and everything is all set up, keeping the books for your company becomes much simpler since you can utilise the data from the bank account to keep track of your income and expenses. On the other hand, one thing you definitely don't want to find yourself doing is the laborious and time-consuming chore of having to manually enter the information about your bank account.

Errors made by humans during manual data input can lead to other problems for a firm (in addition to the production of tax returns), such as neglecting to pay bills on time or mismanaging funds received from consumers.

When you use accounting software that can link digitally to your bank, the majority of the manual entry may be eliminated, which leads to a significant increase in efficiency when tracking sales and expenses.

Suppose you are interested in opening a bank account that spares you the bothersome and time-consuming work of doing manual bookkeeping activities. In this scenario, Wave Money provides its users with a business bank account that comes equipped with integrated bookkeeping software. This software will help you save time and effort while also guaranteeing that you are prepared for tax season.

Making Errors With the Accounting Software You're Using

Using accounting software may unquestionably make the process of organising your accounts more manageable. On the other hand, you run the risk of making mistakes in your books if you don't use the software appropriately. Aside from that, not being able to use all of the features in an effective manner leads in time wasted, which is time that you could have spent attending to other aspects of your company or spending time with your family.

You can learn the fundamentals of bookkeeping from a variety of accounting software companies, and even some accounting and bookkeeping firms, which have professional service teams and a collection of resources that can help you learn how to put those fundamentals into practise as you run your business.

Finding software that meets your requirements for both accounting and business banking will assist ensure that your financial records are always correct and that you have prompt access to your funds at all times.

Choosing A Bookkeeper Who Is Unaware Of Your Needs

One strategy for reducing the amount of time spent on bookkeeping is to contract the work out to a third party. However, this could turn out to be a very expensive mistake if the individual you hire is not familiar with fundamental accounting and bookkeeping concepts, such as the difference between an accrual basis and a cash basis of accounting or how to carry out a reconciliation.

It is money well spent to hire a bookkeeper who has relevant education in accounting and experience working in the field.

A bookkeeper is a someone in whom you should place your trust so that they can assist you in the expansion of your organisation. Even with education and expertise, some bookkeepers can accomplish what you tell them to do, which includes handling the daily activities and running reports; however, it is possible that they do not know your company as well as you do.

A more worthwhile investment would be to hire someone with more specialised knowledge who can examine your records and provide you with appropriate advice and direction. When it comes to making hiring decisions, a lot of business owners put a lot of emphasis on cost, which is something that they should do because cost is a crucial component. However, it is of equal significance to ensure that the individual you engage to perform your bookkeeping is trustworthy and will carry out the tasks in an accurate manner.

Putting Things Off Till The Last Moment

It can be challenging to tackle all of the bookkeeping at once because it consists of a collection of smaller but more numerous activities that build up over time. Leaving things to the last minute can also induce tension and even anxiety, both of which can occasionally lead to serious mistakes being made in your records.

It is easy to understand why people could feel this way given that accounting is not often the most exciting aspect of running a business. On the other hand, this is most likely why some company owners choose to do it just when they are forced to provide financial reports.

The most helpful thing you can do is schedule blocks of time for yourself during the year to finish reading your books. Perhaps an hour of your time each month, when you get your bank statements, to work on your accounting. If you do it this way, you will only need to spend one hour per month on it rather than several days right before the deadline.

Keeping your accounts in order throughout the year can allow you to get more familiar with your financial situation and make more informed choices regarding your company.

Common Errors in Bookkeeping Businesses Commit

• Not managing your cash flow. The activities will become more difficult, and your cash flow will be negatively impacted, if you overestimate your account or do not allow sufficient financing into it. You will be able to better manage your cash flow if you have a straightforward method for keeping your books and keeping track of who owes you money and what invoices need to be paid. Check out some advice on cash flow management for small businesses if you're interested in learning more about the topic.
• Not keeping track of small expenses and losing receipts. Small costs pile up. If you do not keep track of them, you will find that your books have a significant gap in them, and you will not be in compliance with the record keeping requirements of the ATO.
• Failing to recognise significant expenses and writing them off as small ones. Small costs are frequently written off by proprietors of businesses as "general" or "miscellaneous" expenditures. When this is done, it is more difficult to determine what aspects of the company's operations are costing money and which expenses are not necessary.
• Not making time for account reconciliation. It is highly recommended that you reconcile your bank statements with your books on as frequent of a basis as you can manage. Because of this, it is much simpler to contact the bank in the event of any imbalances.
• Not separating your personal expenses from work expenses. This makes it more difficult to keep accurate books, which in turn drives up the cost of hiring a bookkeeper, and it also makes it more difficult to determine how much money the company truly pays you. Instead, you should concentrate on formulating a plan for the management of your profits. If you do so, you will be able to calculate how much profit you are truly making and how much money you have available to pay yourself.
• Poor understanding of books and too much reliance on accounting software. It is a wonderful, but misleading, illusion to believe that having an automatic system that performs all of the balancing for you is beneficial. Your company's information cannot be categorised or coded by the computer, and if it is not organised and managed properly, it will produce a chaotic mess if it is not properly set up. When things start to fall apart, you have no idea where to start trying to put them back together again.
• Not prioritising bookkeeping. People who run their own businesses typically underestimate the amount of time that is required for accounting, and as a result, they either don't allocate enough hours to be able to combine their spending or they just wait until the last minute to finish everything. This results in a greater number of errors, differences in financial status, headaches, and stress.

Errors in Bookkeeping Small Businesses Should Avoid

When it comes to growing their businesses, small and medium-sized companies exhibit a lot of enthusiasm, but they sometimes fail to understand the fundamental criteria. One of these things is bookkeeping, which places your company's business process in peril if it is not taken care of properly.

Many people who own businesses have the misconception that accounting is a relatively straightforward procedure, therefore they don't give it the necessary attention it requires. This is a mistake. However, improper accounting and bookkeeping procedures have the potential to have a negative impact on the organization's overall financial health. Repeated errors in your company's bookkeeping can, in many instances, put your company in jeopardy of going bankrupt.

Therefore, in order to guarantee that everything runs well, here are ten of the most typical bookkeeping errors that small businesses ought to steer clear of at all costs.

A Failure To Dedicate Sufficient Time To The Bookkeeping Process

One of the factors that will determine the success of your small business is how well the books are kept. Consequently, it is of the utmost importance to make certain that each and every monetary transaction is properly recorded and categorised in your accounts, regardless of how large or how small the transaction from customers and clients may be.

Regardless of the size of your company, if you take the process of bookkeeping seriously, it will give you an accurate picture of the success of your business and will enable you to determine exactly how well (or poorly) you have performed over a certain time period. Taking the time to do the bookkeeping properly is important.

Making Purchases Without Keeping Accurate Records

Even the most seasoned entrepreneurs are prone to slacking off when it comes to properly recording their company's financial dealings. Even though it might not seem like a big deal if a meal ticket is lost, these seemingly insignificant expenditures can quickly add up if they are disregarded over and over again. Another consideration is that you don't want the government sniffing through your business to see whether you've claimed expenses for which you don't have any proof to substantiate them.

Being conscious of the insignificant dealings makes it far simpler to handle the more significant ones in the long run. When done in this manner, you will find it much simpler to keep your records updated even if the size of your organisation and the number of transactions both rise.

Having an Excessive Reliance on Accounting Software

In reality, the majority of bookkeeping mistakes are caused by simple omissions, which may be quickly identified and corrected through the use of manual auditing procedures. However, sadly, in today's day and age, it is becoming increasingly usual for smaller firms to entirely ignore them since they are overly reliant on their accounting software.

It is necessary for small firms to conduct appropriate financial audits in order to search for bookkeeping problems contained within their spreadsheets as well as faults that were not detected by the accounting software. The sooner you come to terms with the fact that not all errors will be repaired by any accounting programme, the better chance you will have of preserving an error-free record of your bookkeeping activities.

The Failure to Perform the Most Fundamental Account Reconciliation

You have the responsibility to make sure that the books of your company are reconciled with the bank statement at the end of each month.

The process of account reconciliation can be completed with relative ease. To begin, you have to review your books alongside your bank statement to check for any discrepancies and make sure there are none. Then, as soon as you discover any errors, get in touch with your bank as soon as possible to have the problem resolved. By completing this task on a monthly basis, you can ensure that any bookkeeping problems are successfully corrected before they can cause a significant disruption to the company's financial situation.

Lack of Understanding of the Difference Between Cash Flow and Profits

It is possible for a small business to generate positive cash flow within a short period of time while yet not being profitable. Again, it is possible for it to have a negative cash flow in the near term, but it can still end up being profitable in the long run. The first scenario is very typical for small firms, as these companies frequently have to make payments to their suppliers before they are paid by their customers.

You need to maintain communication with an accountant so that he or she can consistently generate financial statements in order to obtain an accurate image of the genuine financial status of your organisation at all times. Only then will you be able to make informed decisions. These consist of a balance sheet, a profit and loss statement, and an income statement, all of which are to be produced once every three months.

Using the Do-It-Yourself Bookkeeping Method

Many people who own small businesses are proud of the fact that they have to wear numerous hats, one of which is keeping the finances and accounts in order. However, an expert ought to be in charge of this aspect of the company's operations.

The process of bookkeeping and accounting can become rather intricate and involved. Therefore, spending money on a professional bookkeeper or accountant, even if only on a part-time or contract basis, will prove to be profitable in terms of the amount of time that will be saved as well as the number of errors that will be avoided.

Lack of Proper Budget Allocation for Each Project

Does your company sometimes start new projects before assessing whether or not they can afford them? If you start a project without having a good idea of how much it might cost, you will almost certainly wind up spending more money than you had planned to spend on it.

If you do not develop a budget, it will also be difficult for you to regulate the amount of money that you spend. Because of this, ultimately, your organisation will end up spending its limited finances on projects that won't provide a significant return on investment.

As your company expands, you will gain a better understanding of the financial resources that are required to maintain business operations at the current level. You will also have the ability to allot funding to projects that have a revenue potential that is sufficiently promising as a result of this.

Bringing Together Personal And Business Expenses

Regardless of the size of the organisation, business and personal spending must always be reported in a distinct manner in the accounting books. Therefore, one of the first things that people who run small businesses should do is to register a business account and save all of their money from their company in that account.

The following step is to consult with an accountant in order to design a plan for the management of earnings. This plan should define how cash should be kept separate from the firm in order to cover personal expenses. Your strategy for managing your earnings will be determined by a number of factors, including the proportion of your profits that must be reinvested in the company, the timing of payments for significant business expenses, your requirements for cash flow during peak seasonal periods, and your long-term personal financial plan.

Significant Purchases to Be Written Off as Immediate Expenses

Let's say you go to the stationery store in your town and buy $250 worth of printer paper and other essential supplies that need to be supplied on a regular basis. When this occurs, it is of the utmost importance to make a note of the purchase under the category of "office supplies" and then deduct the cost.

If, on the other hand, you decide to buy a new printer, you will need to record this transaction differently. To begin, you must get a firm grasp on the idea that the use of the things you buy is more important than the purchases themselves. Because it is evident that a printer will be used for an extended period of time, you should record it in the books as an asset and depreciate it over the period of time that is considered to be the machine's useful life.

Your Bookkeeper and You Aren't Communicating

Your bookkeeper ought to be aware of everything that is going on in your company at all times. Therefore, it is necessary for your small business to have a detailed record of all of the transactions that it conducts, and it is of even greater significance that this information be thoroughly communicated with the bookkeeper.

It would appear that seemingly insignificant errors, such as buying products or services, particularly those with monthly recurring charges, and failing to inform your bookkeeper of this fact, can result in significant problems in the future.

Maintaining a paper record of all of the transactions, regardless of how large or small they are, makes it much simpler to keep track of all of your revenue and expenditures. This is in addition to maintaining clear contact with your bookkeeper.