Managing your business’s finances can be a bit of a juggling act. With so much going on, it’s easy to make mistakes or take shortcuts that could cost you time, money, and stress.
Here at Blu Bookkeepers, we’ve seen all kinds of mistakes, big and small, and want to help you avoid the same pitfalls.
The Top 10 Bookkeeping Errors to Avoid:
1. Putting expenses in the wrong categories
Mixing up expense categories can lead to misleading financial reports and complicate tax filings. Ensure each expense is correctly categorised from the start.
Example: Confusing ‘office supplies’ with ‘capital equipment’ can mess up your depreciation schedules. Not sure? Speak with your bookkeeper.
2. Not reconciling accounts
Failing to reconcile your accounts weekly can result in missed errors or undetected fraud. Regular reconciliation is crucial for accurate financial statements.
Tip: Set aside time each month for reconciliation to avoid future issues or get us to do it for you.
3. Overlooking Small Transactions
Small transactions, if overlooked, can accumulate and distort your financial statements. Every transaction, no matter the size, needs to be recorded.
Insight: Small errors can contribute to significant financial discrepancies over time.
4. Adhoc or delayed invoicing
Getting behind on your invoices or not sending them out can severely impact your cash flow. Timely invoicing is key to maintaining healthy cash reserves.
One of my new clients, a thriving small business owner, came to me in a state of distress. They were so behind on their invoicing that it was causing a severe cash flow crisis. The impact was devastating, leading to sleepless nights worrying about making payroll on time.
We stepped in and introduced the Profit First methodology. By prioritising profit and systematically setting aside funds for essential expenses like payroll and bills, we transformed their financial management.
5. Mixing Personal and Business Finances
It may feel easier to start using your everyday accounts, but it soon gets messy! The lines become blurred and it’s hard to account for what’s business v’s personal.
Using your business account for personal expenses complicates bookkeeping and can have tax implications. Separate accounts for business and personal finances is a smart move.
Solution: Separate your financial activities to keep clear and clean records.
6. Incorrect GST Claims or Not claiming at all
Once you reach $75,000 in revenue you must be registered for GST. Many choose to do beforehand to claim GST inputs but aren’t set up to claim it correctly which can lead to missed refunds or penalties.
Example: A freelancer missed out on rightful GST deductions due to inattention, affecting their gross income and tax liabilities.
7. They don’t plan for Tax
Mistaking every revenue dollar as free to spend means headaches down the track.
Lack of preparation for tax obligations can lead to unplanned financial strain. Setting aside tax payments in advance as money comes in is good financial practice.
Solution: Account for taxes as an ongoing expense to avoid end-of-year surprises.
8. Missing Payroll Deadlines
Think missing a payroll deadline is not a biggy? Think again.
Late payroll not only affects employee morale but can also result in legal consequences. Adhere to scheduled payrolls to maintain trust and avoid fines.
Pro Tip: Automate payroll and use a bookkeeper where possible to ensure consistency and timeliness.
9. Neglecting Proper Documentation
Keeping thorough records and receipts is essential for accurate bookkeeping and if you are ever audited by the ATO, is an absolute must.
Example: A business faced challenges during an audit due to inadequate record-keeping, emphasising the importance of thorough documentation.
10. Trying to do it on your own or with the help of AI
While AI software promises bookkeeping efficiencies, saving time and money, our real-world clean-up experiences say otherwise.
These tools typically underperform if you, the business owner, don’t already have a strong understanding of accounting or bookkeeping methods. Our clients invest in our services for the time, experience, and expertise we offer—assets that prove invaluable in the long run .
Even for those who find ongoing bookkeeping services a stretch financially, it’s a wise strategy to allocate resources for a bookkeeper’s review of your accounts before submission to an accountant. This step can reduce expenses and catch mistakes early.
Meet John, a dedicated small business owner who decided to rely on AI Software for his bookkeeping.
The software promised efficiency, time savings, and cost reductions. But without a strong grasp of accounting principles, John quickly found himself overwhelmed. Mistakes began to accumulate, unnoticed by the AI.
Feeling the pressure, John reached out to us. We dove into his accounts and uncovered numerous errors that the software had overlooked. These mistakes could have resulted in a significant tax bill and potential penalties. We meticulously corrected the errors and ensured everything was in order before tax season.
When it came time to file his taxes, John was relieved to find that our adjustments had saved him a substantial amount of money. The corrections we made reduced his taxable income, ultimately saving him thousands of dollars. By catching these mistakes early, we spared him from potential fines and the stress of an audit.
Steer clear of bookkeeping errors
Steering clear of these bookkeeping errors does more than streamline daily operations—it lays a solid foundation for sustained success. At Blu Bookkeepers, we’re committed to assisting you in managing your bookkeeping tasks efficiently, with meticulous records, compliance, and financial certainty.
Book a discovery call to see how we can help you avoid these same mistakes.