Bookkeeping is one of those tasks that is crucial to get right for any business, From start-ups to small businesses that have been running for years, the problem of doing it all yourself remains.
Margins are often tight, meaning as the owner, you try to do as many administrative and day-to-day tasks as possible. Not hiring outside help for these tasks means you get to save some money for other areas of your business.
However, if you do not know what you are doing when it comes to something as critical as bookkeeping, you can end up making very costly mistakes.
#1 – Combining personal and business finances
If you own a business, you must keep your personal and business funds separate in order to understand how your company is doing and how much it costs to run it; otherwise, it will be difficult to tell the difference between a business purchase and a personal spend. Especially when it comes to filing your taxes or hiring an accountant to handle it for you in the hopes that they can figure out which expenses should be allocated to the business and save you money.
Why not have a separate credit card for all company needs and allocate your expenses through your bank account? Then, you will always have your bank statement of your business expenditure as a backup to refer to.
The quickest and simplest way to separate the two is to have two different bank accounts.
You can manage your money far easier this way if you:
- Run all business income and expenses through a business account
- Pay yourself a salary into your personal account
- Reimburse yourself if you pay any business expenses from your personal account
#2 – NOT utilising bookkeeping accounting software
Backups of all of your records, both digital and hard copies, are recommended. We constantly urge that you utilise good accounting software. You can choose from a variety of accounting software options to assist you get more control over invoicing, purchase tracking, and financial reporting. Of course, if you want to save money and avoid paying for online accounting software, sticking with Excel is a much better option. Yes, it sums everything up for you and does some of the math for you, which you can then email to your accountant.
If you don’t keep track of all of your finances and bookkeeping, it will be difficult to go through the appropriate papers when tax season arrives.
It will also be difficult if your company is audited, as penalties, late fees, and permissible expenditure deductions may be affected.
#3 – Failing to reconcile your books
Reconciliation is one of the most critical phases in bookkeeping, according to every business management expert. This is where you double-check that your records match and that nothing is missing or misplaced. Yes, it is a time-consuming process, but if you make it a habit, it will be lot easier to ensure that your records are accurate. The more you practise it, the sooner you’ll notice any mistakes and the easier they’ll be to repair. If you are doing electronic banking, this will make the task much easier as you can sync up your records with your accounting software (eg. Xero, QuickBooks etc.).
#4 – Not knowing your business financials
It is critical that you understand your business financials at all times, whether you do your books yourself or have a financial expert do them for you. Always be aware of what’s on your:
- Financial statement
- Profit and loss statement
- Statement of Cash Flow
The risk of doing everything yourself is that you will become distracted by other chores and fail to update your books on a regular basis, leaving you with no clear picture of what is going on, and it may be too late by then. As a result, you won’t be able to make correct decisions regarding future growth or how to spend your money wisely.
Do not let the financial side become a stumbling block!! To avoid these common bookkeeping mistakes call in the experts (that’s the team here are DNA) not only will you get THE best bookkeeping and accountancy support but it will free up your precious time and energy to focus on making your business a success.