Many small businesses are a one-person show. As a brave entrepreneur, you’re responsible for putting on your best performance as well as all the action behind the scenes. You probably have to take care of your own marketing, handle human resources, and, most importantly, do your own books!
We wanted to shine a spotlight on some lessons that you can learn from without making these same mistakes.
Here are five common things that business owners overlook when doing their own bookkeeping.
1. Mixing business and personal
Although running your business is a big part of your life, when it comes to your finances, you still need to treat it as something separate from you. Specifically, this applies to your bank accounts and credit cards. Failing to do so will make it hard to figure out which expenses are business related and deductible for your taxes.
Even if you have separate accounts for business and personal, be cautious when you use personal funds to pay for business expenses. You might forget to account for the expense and miss out on tax savings!
2. Bookkeeping without a bank connection
Once you’re all set up with a separate business bank account, bookkeeping for your business becomes easier, as you can use the bank data to keep track of income and expenses. One thing you don’t want to get stuck with, however, is the painstaking and time-consuming task of having to enter your bank data in manually.
Human error from manual entry can cause other business issues (aside from tax preparation) such as forgetting to pay bills on time or mis-managing payments from customers.
Using an accounting software that connects to your bank virtually eliminates the bulk of manual entry, and makes tracking sales and expenses much more efficient.
If you are using spreadsheets, it’s likely time to upgrade to accounting software. It will save you a lot of time—and as your business grows, this becomes increasingly more important.
3. Not using accounting software the right way
Accounting software can definitely help simplify the organization of your finances. But if you’re not using the software correctly, you can leave your books open to errors. Aside from that, not knowing how to use all the features efficiently results in time wasted, which could have been spent on other parts of your business, or with your family.
Many accounting software companies, and even some accounting and bookkeeping firms, have a collection of resources and professional service teams to help teach you bookkeeping basics and how to implement them as you’re running your business.
4. Hiring a bookkeeper that doesn’t know your needs
One way to avoid some of the bookkeeping work is to outsource the task altogether. However, this can be a costly mistake if the person you hire does not understand basic accounting and bookkeeping concepts such as cash vs. accrual basis of accounting, or how to perform a reconciliation.
Hiring a bookkeeper with relevant accounting education and industry experience is money well spent.
Aside from the basics, a bookkeeper is someone who you should be able to trust to help you grow your business. Some bookkeepers, even with education and experience, can do what you tell them to—handle the daily tasks and run reports—but may not know your business as intimately as you do.
A better investment would be to have someone more specialized, who can dig into your books and give you proper advice and guidance. A lot of business owners focus heavily on cost when they make hiring decisions—as they should, since cost is an important component. However, it’s just as important to make sure that the person you hire to do your bookkeeping is reliable and will do things right.
5. Waiting until the last minute
Since bookkeeping is a collection of small but numerous tasks that build up over time, it can be tough to tackle all at once. Leaving it to the last minute can lead to stress and even anxiety, which can sometimes lead to significant mistakes in your books.
It’s understandable, as accounting might not exactly be the most interesting part of running a business. That’s probably why some business owners choose to do it only when financial reports are required.
The best thing you can do is set aside some time throughout the year to complete your books. Perhaps an hour every month for your accounting when you receive your monthly bank statements. That way you’re spending an hour every month, instead of full days before a deadline.
Another reason to do your books throughout the year is so that you can get to know your finances, and make better business decisions.
Take the time to invest some time in your bookkeeping today, and your future self with thank you!
About the author
Oliver is an Accounting Coach at Wave Plus. He guides small business owners on how to correctly perform their own bookkeeping. While he’s not at work, he enjoys local vintage wines and road trips across Ontario.
About Wave Plus
We built our software to empower you to own your finances. Then we built Wave Plus to lend you a hand if you’re looking for one-on-one coaching for your bookkeeping. We also take it off your hands completely if that’s your preference.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.