Bookkeeping mistakes are almost always avoidable with a little help. But the problem that many small businesses find it that they do not know that they are making mistakes until it is too late. After years of bookkeeping experience here is my list of the ten most common bookkeeping mistakes. Avoid them at all costs because they can potentially destroy a business.
Mistake #1: Doing the books without knowing what you are doing.
Some business owners try to manage the bookkeeping themselves, or get their partner to do the books, or call on the sister of their best mate…and then wonder why they get hit with MASSIVE accounting bills. Call on an experienced, trained and certified bookkeeper to do the books. Save yourself time, effort, stress and save your business from unnecessary accounting bills sorting out the mess you have made. Plus have books that actually can be relied on for knowing how the business is performing and returning an accurate BAS. Use your time to bring in more business.
Mistake #2: Not checking your work
Bank statements, credit card statements, loan statements, creditor statements – these all are external checks that let you see if the data in your accounts is accurate. By checking your data against external sources, you can pick up if there are errors in your system or if you have missed entering data. You should check that every transaction in your records agrees with the matching transaction in these statements. If you have a bookkeeper, you should know how to check that this is being done.
Mistake #3: Letting things slip.
It’s human nature to procrastinate when you aren’t keen to do something. And let’s face it, doing the accounts isn’t the most exciting way to spend a Saturday night. But unless you keep on top of the accounts, you won’t know how your business is performing. And if you leave chasing debtors or paying creditors for too long, your business can actually fail. Take the time to regularly sit down with your statements, your cheque book, your bank deposit book, your bills and dockets and get up to date. Or better still, get a bookkeeper in regularly to keep things up to date for you. You can go out and enjoy your Saturday night instead.
Mistake #4: The old soft shoe shuffle
Surely the days of the shoe box are gone? Hmm, maybe not. Bookkeeping software is extremely efficient, can minimise errors and reduces those accounting bills. It’s time to farewell paper and spreadsheet systems. If you don’t know what software to use for your business, click here.
Mistake #5: My computer has crashed!
The most dreaded phrase in the bookkeeping world (along with “the tax office is on the phone”). If you have data on a computer, you MUST have a process to copy that data. Use USB sticks to store copies regularly. We also love Carbonite offsite backup, which automatically puts a copy of all our selected data up on the cloud. Just in case….
Mistake #6: Giving access to the wrong areas to the wrong people
Don’t empower anyone to transfer money from your bank accounts. Check when electronic payments are being processed that the amounts are going to the supplier or staff bank accounts. Check that supplier bills really are from those suppliers and that they are receiving the payments. Know what’s going on in your business. Read your bank statement. Get receipts from your staff if they have a business credit card (and not just the slip that shows how much was spent – you want to see the details of what was bought). If it can happen to Clive Peeters, it can happen to you!
Mistake #7: Not keeping proper records
We see chequebooks where the stubb is all that is there, with no details. And no bill matches the amount we can see in the bank statement. If you want your bookkeeping to be as straight forward as possible, always follow this process:
- On every bill paid, write how it was paid and when it was paid
- On every internet payment made, print off the receipt and staple it to the bill
- On every cheque stubb, write who it was made out to, how much and what bill numbers were paid
- Do not throw out bills or dockets for minimum of 5 years
- When debtors pay, record which invoice number is being paid (or if they send remittance advice, keep it)
- Print off all email bills and remittances
- Collect dockets for all cash expenditure
- Have a separate bank account just for your business
- Try to have a separate credit card just for your business
- Keep your personal affairs separate from the business
Mistake #8: Not knowing how your business is going
“Hey, if there’s money in the bank, then it must be all right!”
No, you can’t judge how a business is performing by looking at the bank balance. There are plenty of bills and invoices that can be unpaid and so haven’t hit the bank. And what about how much you owe compared to how much you own? If you don’t know the difference between cash and accrual reporting or if you don’t know how to read a balance sheet or a profit report, get help here.
Mistake #9: Giving it all away
Your business data IS your business. You wouldn’t leave the key in the door, so why wouldn’t you put passwords on your accounting software, put in security so that only permitted users can access the areas of the accounting software that are allowed to them, and PUT DECENT ANTI-VIRUS SOFTWARE on your computer. As I am writing this, my staff are dealing with a hacked computer for one of our clients. It is a reality to be protected against.
Mistake #10: Not knowing when things are going belly up
We have seen businesses where family and friends lend money to keep the business going, where the director has taken out more and more credit cards, where the bills mount up and up, where the phone calls come in constantly asking for payment. It’s a nightmare situation. If your business is heading in this direction, then you need to take stock …is the business insolvent? Is it time to call it a day? If your business can’t pay its bill as they become due, then it is probably insolvent and it is time to get expert advice. First stop – your accountant.