When you are running your own company, the bookkeeping can be a huge inconvenience; yet, THE BOOKS tell the story of how the company is doing. You turn to them for answers, not just to simple questions like, “How much money are we making?” but also preparing for the future or making decisions on significant purchases. Many times, you cannot find the answers you need to make sound decisions.
I love entrepreneurs. You are motivated and driven to succeed, but so many small businesses fail in the first years because of bad record keeping. You don’t know where to get started. You don’t have time to deal with it. You do not like doing it. Then, it turns into total chaos.
I do not want Bookkeeping chaos to be part of your business!
I have been a bookkeeper for a long time. I don’t really want to tell you how long because it makes me sound older than I am. I have seen the good, the bad and the ugly when it comes to entrepreneurs and bookkeeping. Here are some common mistakes made by small businesses and how to avoid them.
Mistake #1 – Mixing Business and Personal Accounts
When you run your own company, you may find yourself writing checks out of your personal bank account or using your personal credit card to purchase business expenses. Or, you may use business funds to pay personal bills. You might use the company credit card to buy your daughter’s birthday present; or pay cash for a truck. This makes for messy bookkeeping because all these transactions have to be tracked down later.
Have a bank account and a credit card for only business transactions. That way every deposit is Income and every payment is an Expense for the business. I know what you are thinking, “What if there is no money in the business account and I have to pay a bill out of my personal funds?” THIS IS AN ABSOLUTE MUST – Transfer money into the business account (this is called an owner’s contribution) and pay the bill out of the business account. “But isn’t that adding more work?” No! It actually makes everything very clean and clear. You do not have to find how you paid for that power bill – “Oh, yeah, I used my personal credit card. Where did I put that statement?” Your books will be so much easier to maintain.
Mistake #2 – Throwing away receipts
Many people throw away small receipts for things that we purchase every day. (Even I do it.) This is fine for that nail file from the Quick Stop or your drive thru Starbucks, but holding on to business receipts is a necessity.
Develop a system designed to capture every piece of documentation. This can be an electronic filing system, but I highly recommend a drawer that is organized so that receipts can be easily found. Whether it is by month, vendor, or some other system, have a system. A lot of what is done in the bookkeeping arena is prefaced by that scary phrase, “What if we get audited?” You will have the documentation to prove your write-offs are accurate.
Mistake #3 – Lacking Control of your Financial Processes
This can be a scary one! If you have any employees at all, you need to be thinking about this. Usually, a company doesn’t think about it until something has happened, and then it is too late. Someone has embezzled money from your business. I have seen it happen. Remember that movie with Leonardo DiCaprio and Tom Hanks where he was able to take thousands of dollars from an airline? That was A TRUE STORY!
Establish sound bookkeeping, financial, and banking controls. For example, with the exception of your bookkeeper and tax professional, NO ONE should have access to the banking records, whether online or paper. Who has access to the mail if you are not there? Do not be loose with signing authority. Not even your bookkeeper should sign checks. You MUST sign every check. Someone else can prepare and print checks, but you must approve every one. I do not want to go into too much detail on this, because it gives would be thieves an understanding of what to be on the lookout for. If you like, schedule a free consultation, and I will discuss this with you in a private setting.
Mistake #4 – Pretending Bookkeeping Doesn’t Exist and “Doing the Books” once a year
Or worse yet, handing a box of receipts and a stack of bank statements over to your CPA in February hoping he will be able to file on time. You already filed an extension if this is what is happening. This is a mess. You probably know what I am talking about. You have no idea how much money you are making. You cannot ignore the books or the finances of your business! But you don’t need to go back to school for your MBA.
First, find someone who can show you what it takes to run your business finances. This person should be familiar with your industry. Second, find someone to handle all of the routine bookkeeping and accounting matters. And, third and most IMPORTANT – review this person’s work on a monthly basis to ensure you are being cared for. If this person is doing their job, they will be teaching you the basics and what to look for, and you will know how to tell the difference between a good bookkeeper and a careless one.
Mistake #5 – Trying to Do It All Yourself
Who does your books now? You? Your CPA? Or worse yet, NO ONE? If it is you, when do you do it? Are your kids begging for your attention while you are trying to figure out why that check bounced? What could you be doing instead of bookkeeping? Or, if you are not doing it, does this sound familiar – you put it off until the task is so overwhelming that it makes you want to burn that pile of receipts and statements so it will all go away.
You did not start your business to be spending time entering receipts and tracking money. You started because you have a passion for what you do. Let us take care of the tedious task of bookkeeping, so you can get back to doing what you do best. We offer a free consultation. We even go over your current situation and make recommendations, all before charging you a cent. Take the stress out of running your business, and spend your time writing or doing something with your family, because that is why you started this business in the first place. If you do not contact us, that is totally fine, but I hope you take some of my advice and make some critical changes in your business.