From one-person enterprises to multinational corporations, bookkeeping is a critically important aspect of any organization. When done well, bookkeeping plays a surprisingly significant role in a company’s success. When done poorly the smallest errors will, over time, cost the company money. Here are 5 common mistakes to avoid:
1. Not hiring a Bookkeeper. Sure, it’s not a glamorous position, but even the most aloof business owner will come to understand it is a vital one. Often, the low person on the totem pole gets the unenviable task of playing around in QuickBooks. Alternatively, many owners insist on handling the books themselves. Hiring a competent bookkeeper provides a second pair of eyes to find and investigate errors, work efficiently, and to provide actionable insights. Choose your bookkeeper carefully, as there are probably many local options wherever you are located; with varying degrees of competency. We offer a very reliable and convenient envelope bookkeeping service that suits the needs of most small businesses.
2. Failing to Stay Current. Your accounting records should be used as a business planning tool, because the planning process never ends. These records are not just for tax time or to keep you covered in the event of an audit. Up-to-date records generally provide insights into your business, such as negative trends and whether you are achieving the goals you need to achieve to stay profitable.
3. Not Seeing the Whole Picture. Many business owners take a look at the Profit & Loss numbers and, if favorable, assume all is well. Understand the many other KPI’s (key performance indicators) and factor those into a more holistic view of the situation. Consider working with a good bookkeeper and/or accountant to produce quarterly statements consisting of a balance sheet, income statement, and the profit and loss statement.
4. Dismissing the Basics. Sometimes expenses are entered in the wrong categories or not entered at all. Perhaps you frequently forget to track reimbursable expenses. Perhaps the most common mistake is combining personal and business finances. Once you get started, open-up a business bank account and apply for a business credit card. If you aren’t already, familiarize yourself with standard bookkeeping practices and understand how to follow accepted and recommended accounting practices. One very basic standard practice is reconciling the books with the bank statements every month. Yet another reason to hire a professional bookkeeper or accountant…
5. Lack of Communication & Petty Cash. Even if you hire a bookkeeper, they won’t be very effective if you don’t keep them apprised and in-the-know about all financial transactions. It is very easy to not report a bonus or fail to save a receipt for supplies. This might commonly entail being too casual with petty cash, as accurate records are not always maintained. Many businesses keep a stash of “petty cash” to be used by employees to cover small business expenses. A basic bookkeeping system for petty cash keeps a log and requires workers to submit a petty cash “slip” whenever they use petty cash.