Bookkeeping Blunders

For a small business, the bookkeeping is the one ball that you really must not drop and yet it is the one that seems to be constantly being tossed in the air with a desperate cry of: “Later!” It is easy to let things slip or make errors, especially when your specialism is your business niche and not necessarily the books.

But you really are not alone - most of us have been there at one time or another. Here are five of the most common bookkeeping blunders and a little word of advice on how to fix them and get back on track.

1. Mixing Business and Personal Finances

So, so tempting, isn’t it? Especially when you’re feeling rushed and you pull out the business debit card instead of your own personal one at a busy supermarket and everyone in the queue is frowning down at you…This is perhaps the most common and easily avoidable mistake. Personal and business finances make for a messy tangle if the transactions are not kept separate and this can be very difficult to untangle, especially when filling out your tax returns or trying to explain things to the revenue. It also makes things harder when you’re trying to get an accurate picture of the state of health of your business finances.

The Fix:

Open a separate business bank account and credit card as soon as possible. Route all business income and expenses through these accounts. Even for small cash purchases, try to use your business card or reimburse yourself from the business account. This clear separation will save you headaches and make reporting a breeze. Now, we know that is often easier send than done, so while you persist in opening up an account just for your business, make sure your record keeping and paper trails are flawless.

2. Neglecting Regular Reconciliations

This is one of the easiest things to ‘leave till later’. It feels time consuming but we all end up thinking it can be done in a jiffy when we have a spare five minutes. Except it’s never just five minutes, especially if you leave it month after month and suddenly you have a year’s worth of transactions to reconcile. Think of reconciliation as cross-referencing your bank statements with your accounting records. It’s a vital step and not a tedious chore. However, neglecting it means you could be missing errors, or unrecorded transactions.

The Fix:

If you are doing your own bookkeeping, then your best attribute will be consistency. Schedule a regular time each week or month to reconcile your accounts. Most accounting software makes this process relatively straightforward. Give yourself time to concentrate on this, and allow for the investigating of any discrepancies straight away, while you still feel fresh about the transactions you are looking at and recall any particular issues. This is much harder to do months later when you have forgotten what the details of the transaction were. The sooner you catch an error, the easier it is to correct.

3. Poor Record Keeping

Are your receipts stuffed into an old shoebox, or are they neatly scanned and filed? Are purchase invoices marked as ‘paid’ or ‘pending’ and do you know what you owe each of your suppliers. Possibly even more important, do you know what each of your customers owes you? Incomplete or disorganised records can lead to your books becoming a mess that can be costly to unravel.

The Fix:

Embrace digital solutions! Accounting software is out there, at different price points and different levels of complexity and mostly pretty user-friendly. Many are designed specifically for small business owners who have no previous background in accounting. But if you prefer paper, then at the very least establish a system for physical receipts, such as filing them by month or category. The goal has to be to have a clear, easily accessible record of every transaction. And never underestimate the power of a good spreadsheet!

4. Not Understanding the Basics of Debits and Credits

As with most aspects of small business, while you don’t have to be an expert in that particular area of work (like marketing or sales) having a basic understanding of how transactions are recorded (debits and credits) can be incredibly helpful. Just knowing this helps you interpret financial reports and a keen eye, with a bit of practice, will soon spot potential errors in the entries. Many business owners rely solely on software without truly understanding what’s happening behind the scenes, and then wonder why the software has not really helped them make sense of the books.

The Fix:

Spend a little time in learning the fundamentals; this is you investing in yourself and your business. There are many free resources online – articles, videos, and short courses – that explain basic accounting principles in simple terms. Your confidence as well as your financial literacy will grow and even if you go on to employ the services of a professional bookkeeper, you will have a much better understanding of your business’ finances.

5. Falling Behind on Bookkeeping

We all find that life gets busy, really busy sometimes, and the pace can be breathtaking and bewildering. Bookkeeping can easily slip to the bottom of the to-do list. But, letting it slip over and over again, procrastinating (and we are all prone to procrastinate over tasks we really don’t like to do or feel out of our depth with), can end up with your having a mountain of work, stress, late filing fines and more stress, and the vicious circle repeats again the next financial year.

The Fix:

Break your bookkeeping down into small, manageable tasks. It’s better to dedicate 15-30 minutes a three times a week than trying to tackle everything in one go at the end of the month or quarter, or even the year (yes, we’ve had to pick up a year’s worth of bookkeeping for a client just days before filing deadlines!). If you're consistently overwhelmed, consider outsourcing your bookkeeping to a professional service, like Athena. It's an investment that can save you time, stress, mistakes and save you money in the long run.

The biggest plus of addressing these common bookkeeping blunders is that you can gain much greater control over your business finances, make decisions with financial information at your fingertips (which usually means better decisions being made) and ultimately, set your business up for sustainable growth.

If you are feeling overwhelmed just reading this, go on over to the Contact page and reach out, or DM us in our socials. We can help, and even a free, no-obligation chat with one of our team might help you cast some clarity on your business bookkeeping.