BQE’s time and billing software can help prevent bookkeeping mistakes with remote time tracking and an all-in-one dashboard.
Top 5 Bookkeeping Mistakes Every Entrepreneur Makes
Fortunately, there are a few tried-and-true strategies that can help you avoid critical bookkeeping mistakes.
If you've recently decided to start your own business, you're probably experiencing a whirlwind of emotions. You're naturally excited to be pursuing your dream of owning your business, but you're probably also a little nervous too.
Nonetheless, feelings of nervousness and trepidation are positive signs: they mean you understand the importance of starting your business on the right foot! Unfortunately, many businesses fail specifically because the entrepreneurs who had all the great ideas simply didn't plan properly to ensure that the nuts and bolts of the operation ran smoothly.
One of the main reasons new businesses flounder - and eventually fail - is due to mistakes in bookkeeping and accounting procedures. Fortunately, there are a few tried-and-true strategies that can help you avoid critical bookkeeping mistakes.
1. Not Having a Separate Business Bank Account
Many small business owners make the mistake of merging their personal and business bank accounts. While it may seem convenient at the time, it can cause a complicated and time-consuming mess when it comes time to separating expenses and figuring out deductibles for tax filing purposes. Lumping everything together will also result in paying much more for tax preparation services than if your financials were organized separately.
In addition to having separate accounts, you should have at least one designated credit card for business expenses. Making business and personal purchases with the same credit card makes it far more likely that there will be errors, which oftentimes results in fines from the IRS and can potentially trigger an audit.
2. Not Backing Up Data Regularly
Unexpectedly losing valuable data costs business owners a significant amount of time and money, particularly if the loss includes confidential customer information. What's more, even if the lost data isn’t customer data, the day-to-day functionality of your business will be severely impacted until files and documents can be restored. The popularity of cloud-based services means that retaining hard copies of data isn't anywhere near as necessary as it once was. You still need to have backups, however, so be sure that either you or your bookkeeper has at least two sources of digital backup data on hand at all times. Make sure your data is backed up automatically to a cloud-based platform, or that you are running data backups regularly, such as weekly or monthly.
3. Not Entering Data in a Timely Fashion
Although it's tempting to put off entering small amounts of data, it's better to do so as quickly as possible to keep things streamlined and organized. Keep in mind that bookkeeping is a matter of numerous small tasks that comprise a much bigger picture. Setting aside some time at the end of each day to input any necessary data that has accumulated over the course of the day is a far more effective approach than saving it up for the weekend or telling yourself that you'll get to it when you can. As a business owner, you'll be responsible for entering a certain amount of minor data yourself on a regular basis, even if you hire a dedicated bookkeeper.
4. Not Delegating Bookkeeping Tasks
As tempting as it might be to tackle bookkeeping tasks yourself, it's not very realistic once your business begins to grow. Unless you're well-versed in business law and accounting, this type of do-it-yourself approach may end up costing you more than it would if you hired a competent professional to do the job.
One of the main reasons why many businesses fail is due to poor planning. Instead of focusing on business development strategies, as well as customer procurement and retention, they micromanage foundational tasks - like bookkeeping - to the extent that their essential role as the heart and soul of the business is neglected.
Delegate bookkeeping tasks, hire a dedicated accountant, or enlist in the assistance of an accounting firm to make sure bookkeeping is done properly.
5. Not Hiring the Right Bookkeeper
Even business owners who understand that delegating bookkeeping tasks frees up their time so they can focus on more meaningful tasks often fail to take into account that accounting services aren't one-size-fits-all. Be sure to take the time to find a bookkeeping partner that understands the needs of your business. This could be one with relevant experience and education in your particular industry or one that specializes in helping small new businesses gain traction straight out of the gate.
Be sure to accurately define your wants and needs before searching for a bookkeeper or accountant., Also keep in mind that switching gears midstream is likely to be a costly and potentially aggravating undertaking. Although there's no guarantee that you'll find the right person directly out of the gate, you can hedge your bets by establishing clear and realistic expectations.
BQE CORE offers powerful accounting capabilities to help your small business avoid the most common mistakes that people make when they are first starting out. By keeping a complete general ledger, setting up automatic billing for your clients, and automatically generating profit and loss statements, you will establish all the foundational basics required to set your business up for success. Contact us today to learn more.