7 Bookkeeping Mistakes Small Business Owners Make (and How to Avoid Them)
Avoid common bookkeeping mistakes that can cost your small business time and money. Learn seven simple ways to keep your books organized, stay on top of your finances, and make better business decisions throughout the year.
Andrew Kim
9/19/20263 min read
7 Bookkeeping Mistakes Small Business Owners Make (and How to Avoid Them)
When you’re running a small business, bookkeeping is probably not the part of the job you enjoy most. There are customers to deal with, invoices to send, projects to finish, and a long list of other things competing for your attention.
It’s easy for bookkeeping to get pushed to the bottom of the list.
Unfortunately, small bookkeeping mistakes can become bigger problems when they are left unresolved. Here are seven common mistakes small business owners make and what you can do to avoid them.
1. Mixing Personal and Business Expenses
Using a personal credit card or bank account for business purchases might seem convenient, especially when you’re just starting out.
The problem is that it makes your bookkeeping much harder.
When personal and business transactions are mixed together, you have to spend extra time figuring out which expenses belong to the business. It can also make it more difficult to understand how much money your business is actually making and spending.
A better approach: Use a separate business bank account and, whenever possible, a separate credit card for business expenses.
2. Falling Behind on Bookkeeping
One of the most common problems for small businesses is simply not keeping up with the books.
A few weeks can turn into a few months, and before long you have a large backlog of transactions to deal with.
This can make it difficult to know how your business is doing financially. You may also find yourself scrambling when you need financial information for your accountant, a lender, or a tax filing.
A better approach: Set aside regular time for bookkeeping or have a bookkeeper handle it for you.
3. Not Reconciling Bank Accounts
Entering transactions into QuickBooks is only part of bookkeeping.
Your bank and credit card accounts should also be reconciled regularly. Reconciliation helps identify missing transactions, duplicate entries, incorrect amounts, and other errors.
Without regular reconciliation, your bookkeeping records may look correct while still being inaccurate.
A better approach: Reconcile your business bank and credit card accounts at least monthly.
4. Treating Every Purchase as a Business Expense
Just because something was purchased while running your business doesn't necessarily mean it should be recorded as a business expense.
Some purchases may be personal, while others may have specific tax treatment or require additional documentation.
If you're unsure whether an expense is appropriate, it’s better to ask your accountant or tax professional rather than simply guessing.
A better approach: Keep receipts and maintain clear records explaining the business purpose of significant expenses.
5. Ignoring Accounts Receivable
Getting paid is just as important as making sales.
If you send invoices but don't keep track of who has paid and who hasn't, outstanding invoices can easily slip through the cracks.
A growing accounts receivable balance can also create cash-flow problems, even when the business appears profitable on paper.
A better approach: Review your outstanding invoices regularly and follow up on overdue accounts.
6. Using the Wrong Account Categories
Bookkeeping isn't just about recording transactions. Transactions also need to be categorized correctly.
For example, putting equipment purchases into an ordinary office expense account could result in inaccurate financial statements and may affect how the purchase is treated for tax purposes.
You don't need to memorize every accounting rule, but your chart of accounts should be set up appropriately for your business.
A better approach: Keep your chart of accounts simple and consistent, and ask an accounting professional when you're unsure how something should be recorded.
7. Waiting Until Tax Time to Think About the Books
Your bookkeeping shouldn't only matter when tax season arrives.
Good financial records can help you understand your revenue, expenses, cash flow, and profitability throughout the year. That information can help you make better business decisions before problems become serious.
For example, if your expenses have been increasing faster than your revenue, you want to know that sooner rather than later.
A better approach: Keep your books current throughout the year and review your financial reports regularly.
Good Bookkeeping Doesn't Have to Be Complicated
For many small businesses, good bookkeeping comes down to a few basic habits:
Keep business and personal transactions separate
Record transactions consistently
Reconcile accounts regularly
Keep receipts and supporting documents
Stay on top of unpaid invoices
Review your financial reports
Ask for help when you're unsure
The goal isn't to spend your entire week doing bookkeeping. It's to have accurate, organized financial records that give you a clear picture of your business.
If bookkeeping is becoming difficult to keep up with, outsourcing it can give you back time while keeping your financial records organized.
YEG Bookkeeping provides monthly bookkeeping, financial reporting, and catch-up and clean-up services for small businesses in Edmonton and surrounding communities.
