Money is a funny thing…
If you’re anything like me (and you probably are) you’ve spend the majority of your adult life trying to get more of it.
We spend a ton time and mental energy trying to take our business to the next level- financially. We are extremely focused on growing our business…
But, somewhere between the extreme focus and busy schedule…
We end up becoming lazy about keeping track of exactly “how well” the business is doing and ultimately treat business finance activities like doing our chores… It ends up becoming boring, maintenance work. But it’s not – It’s growth work!
Ask yourself this:
Would a world-class runner who is training to break a world record “kind of keep track” of his performance times?
No way! He needs to know exactly where his current times are so that he can adjust and improve his performance.
Keeping track of business finances are no different… If any of this is resonating… keep reading!
We have compiled a list of the most frequent mistakes and habits being made in business finances.
- Combining Business and Personal Finances
One of the golden rules of small business finance is to never combine business finances with personal ones. Before you even open your doors to the public, it’s imperative that you open a business checking account. This ensures that funds taken in by the business are used expressly for business purposes.
- Forgetting to Keep Track of Petty Cash
Many businesses have a “petty cash” drawer, which is used for small purchases such as office supplies, break room supplies and other incidentals. If you make the mistake of not keeping track of this money, you may end up spending much more than anticipated on these smaller purchases. Also, if you are not keeping track of those receipts you may not be getting the proper tax deduction.
- Failure to Reconcile Bank Accounts
Don’t panic when it comes time to reconcile your bank accounts each month. Chances are, once you’ve done it once or twice, it will quickly become second nature. Problems arise if and when the task is ignored for several months in a row. When you reconcile your bank account you are ensuring that all the bank transactions are recorded and not entered twice.
- Neglecting to Save Every Receipt
Some business owners make the mistake of not keeping receipts and relying on bank or credit card statements. But, failure to keep track of every purchase can lead to overspending without you even realizing it. Not only could you be overspending, but if you are not saving your receipts, come tax time you will miss out on deductions that will lower your taxes.
- Going Completely Paperless
In today’s world, it’s easier to go paperless than ever before. However, without a physical paper trail you need to be extra cautious and ensure your records are backed up. Why? If everything is done by computer and you don’t back up your files, there’s always the possibility that you might lose everything if your hard drive crashes. Being paperless can be great and simplify your business, but if you don’t have a regular external backup scheduled that should be your number one priority. An external hard drive or an online backup system are very reasonably priced and are an asset to your business.
- DIY Bookkeeping
In an effort to save money, many small business owners attempt DIY bookkeeping. If your budget doesn’t allow you to hire someone, even part-time, consider hiring someone on an “as needed” basis. The money you spend usually comes back to you several times over, considering the possible mistakes a bookkeeper will undoubtedly avoid. A clean set of books also means your CPA doesn’t have to spend time cleaning it up before doing their job. Paying a bookkeeping is much cheaper than your CPA.
- An Overflowing Filing Cabinet
Maybe you have stacks of invoices on your desk. Maybe your bookkeeper isn’t the most organized. Either way, this style of bookkeeping is sure to have you missing deadlines. At the very least, make an effort to buy a scanner this year and get started on a virtual filing cabinet (preferably not such a messy one).
- Not Having Set Deadlines and Due Dates
Always wondering where something is? Not sure when your report will be delivered? Lacking set deadlines and due dates is a habit sure to keep your bookkeeping late and inaccurate.
- Not Setting Aside Payroll Taxes Regularly
Trying to go it alone on payroll processing? You might want to reconsider that when the IRS comes knocking to make sure you’re doing the right thing in the ever-complicated world of payroll management.
- Skipping Regular Accounting and Bookkeeping Training
With constant changes in everything from your accounting software to bookkeeping regulations and best practices, staying on top of current rules and technology is a must if you want your bookkeeping to remain intact.
- Hiring A Newbie For a Pro’s Job
The IRS will not care that you saved a few dollars by hiring someone who simply didn’t know enough to do things the right way.
- Ignoring Opportunities For Accounting Integrations
All that pretty data you painstakingly input into QuickBooks? Guess what? It speaks to a lot of other platforms as well. If you’re utilizing programs for expense management, inventory or bill payment (among others), make sure you successfully integrate your platforms so they run smoothly together. Data synchronization will reduce the potential for error as well as improve your time management and efficiencies.
- Not Standardizing Monthly Financial Report Processes
Whether you get a robust array of reports or simply review your balance sheet and P&L each month, make sure you get the same reporting every month at the same time. By standardizing reports and establishing expectations, you will have a better time tracking and analyzing key financial data.
- Failing To Keep On Top of Your Aging Reports
All those invoices you have sent? They’re terrific until you fail to keep track of whether you got paid. Sending invoices are only one piece of making sure you have enough money to be in business–if your cash flow doesn’t show it, you have a problem.
- Failing To Understand Key Accounting Metrics
Quick! What is your gross profit margin? If you aren’t sure about that or any other key performance indicators in your accounting data, put this as your #1 bad bookkeeping habit to remedy this year. After all, you can’t budget and forecast with a rough guess-timate.
Credit to: Bill Gerber, AccountingDepartment.com, ServisHero.com
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