Throughout his career, Thomas Datwyler has worked as a compliance officer and treasurer in the private and government sectors. His skills range from basic bookkeeping and accounting to comprehensive cash flow reports. Experienced accounting professionals such as Thomas Datwyler are familiar with the many common bookkeeping errors that can impact businesses, resulting in decreased profits, losses in productivity and employee morale, and, in some cases, regulatory penalties and legal consequences.
Speaking broadly, small business owners, leaders of startups, and entrepreneurs should refrain from guesswork during bookkeeping processes. Accurate and compliant bookkeeping practices are critically important for financial stability and overall business success. Even so, many inexperienced business leaders have a tendency to guess their way through bookkeeping. Making a few small assumptions may not necessarily have a significantly detrimental impact, but, as businesses make more small mistakes, the consequences tend to compound over time. Come tax season, business leaders may realize they have to go through reports and statements from the entire year and make comprehensive corrections.
Rather than guessing, business leaders should develop a consistent bookkeeping system tailored to their specific needs. Otherwise, they run the risk of making another common bookkeeping error: wasting time. Time is a value commodity, and small businesses in particular cannot afford to waste time or resources on disorganized, ineffective bookkeeping processes. Entrepreneurs should collaborate with experienced accounting professionals on the tenets of effective bookkeeping, which include customized accounting charts, proper expense classification, and the development of weekly or monthly bookkeeping checklists.
Timely bookkeeping is also essential to long-term success. Allowing receipts to pile up for weeks or months at a time can seriously hinder a company’s ability to execute effective bank reconciliation processes. Entrepreneurs will have a much easier time remembering tax-deductible expenses and spotting simple errors before they cause serious trouble if they engage in regular, consistent bookkeeping. Timely bookkeeping also reduces the risk of an employee throwing away receipts, another simple but costly bookkeeping error.
Blending personal and business spending is a major bookkeeping mistake at best, and a legal nightmare at worst. In some cases, such as covering a business dinner with a personal credit card and rectifying the expense later on, mixing personal and business spending results in needless complications. Business leaders should get in the habit of never using personal funds to cover business costs, and vice versa. Using a dedicated small business credit card is an easy way to avoid confusion and time-wasting reimbursement activities.
As time passes and small businesses start to enjoy success, leaders may either grow lax in their duties or fail to balance their growing responsibilities. Failing to thoroughly vet all financial statements can undo an owner’s hard work. Not only does staying up to date on financial statements allow a person to effectively monitor a company’s cash flow and adhere to budgetary constraints, but it can also alert owners to potential tax deductions, important business trends, and other valuable growth opportunities. If possible, small business leaders should outsource or hire skilled accounting professionals to get the most out of their financial statements.
With this in mind, entrepreneurs who have successfully grown their businesses to the point that they can afford to hire accounting professionals should avoid the mistake of hiring inexperienced bookkeepers, even if it means saving on salary. Instead, business owners should search for bookkeepers who have experience in their particular industries. Leaders serious about company growth should also hire certified public accountants as soon as possible.
