Want to avoid being “that” business owner? You know, the one who shows up to their accountant’s office with a box full of receipts? And has no idea if they’re in the red or the black?
If you watch Shark Tank, you know poorly managed finances and a lack of knowledge doesn’t fly with Mr. Wonderful.
But, beyond investors, it doesn’t fly with the IRS or your clients either. That’s right. Your clients WILL notice when you’re making bookkeeping mistakes.
For example, a friend of mine recently had a (highly reviewed) contractor put her home renovation on hold. He was missing payments from other clients and, consequently, was overdue on their bills. As a result, they couldn’t purchase the supplies they needed to complete her project.
Regardless of how great you are at your job, don’t let bookkeeping practices cost you money or your reputation.
Below are a few rookie bookkeeping mistakes you could be making — or merely need to avoid.
Not Separating Your Business and Personal Finances
This mistake is one we like to drive home often because it’s that important. In fact, we wrote an entire post about why you should separate business and personal finances here.
But, if you’re in a hurry, here’s the short and sweet: When you start a business, immediately set up a new bank account to be used for business purposes only.
If you need the funds, transfer money from your personal account into your business account. To explore ways of how to do that, check out this article.
Keeping your finances separate will help you avoid sorting out transactions later or missing beneficial tax write-offs.
Waiting Until Tax Time to Reconcile Your Finances
The word reconcile means to coexist in harmony. In regards to accounting, that means two sets of numbers need to be in agreement, for example your bank and Quickbooks. And don’t you want to be at peace with your finances?
Reconcile your accounts at least once a month, but the more often you do this, the less overwhelming it’ll be.
Reviewing your transactions will help you avoid late payments, invoice your clients on time, and decide how you want business to move forward. We recommend using QuickBooks because you can easily connect all your accounts and categorize transactions.
Doing it All on Your Own
Entrepreneurs tend to do everything on their own. Maybe you want to save the money? Or you just aren’t ready to hand your bookkeeping off to someone else?
Either way, this is one area where support is crucial because having incorrect books is just as bad as not having books at all.
Support can come in many shapes and sizes. You could take an online training course, invest in one-on-one consulting, find a business bestie who can be a second pair of eyes on your account, or hire a professional.
But, even if you aren’t ready to hire a professional, these mistakes are avoidable. Set aside 10 to 15 minutes each day to reconcile your accounts. Invest in a robust, yet easy-to-use bookkeeping software. And schedule a consultation with a bookkeeper — even to just get a few pointers.
The bigger your business grows, the more complex your finances will be. It may be best to have someone in your back pocket when it’s time to level up.
Have I missed anything? What other rookie bookkeeping business mistake should entrepreneurs avoid?