For many business owners, bookkeeping is just another mundane task they are required to carry out. The reality is – it should in fact, be a cornerstone of any business.
Instead, its often overlooked whilst business owners lose sleep over their revenue, staffing and marketing. Whilst it is also important to focus on these things, bookkeeping should be just as high on their priority list.
Here are 5 of the most common bookkeeping mistakes that we see businesses make:
Not reviewing balance sheets
Most business owners are familiar with the concept of a profit and loss statement (or income statement). It’s a commonly used financial document that lays out the revenue and expenses of a business over a certain period of time.
However, if a business doesn’t review its balance sheet as frequently as they review their profit and loss – this could lead to financial consequences.
For example, a profit and loss statement may show a business is making a high amount of revenue in a given period of time. A closer look at the balance sheet could show that the liabilities for that period of time far exceed the assets of the business.
Perhaps, with time, the revenue will be able to cover the difference. The issue here is – the confidence a positive income statement can give without the perspective of a balance sheet. This could lead to a business taking on more liabilities than they can handle.
It works both ways too. Businesses are sometimes afraid to invest due to a low-income period. An analysis of the balance sheet could reveal the business does in fact have a low enough liability-to-asset ratio to take on investments they thought not possible.
Combining personal and business accounts
Businesses start for a variety of different reasons. Many entrepreneurs are not considering the bookkeeping side of things at the beginning. This can lead to the mixing of their personal and business finances which would be problematic down the line.
If a business isn’t completely independent from the owner’s personal bank account, they will make important decisions based on inaccurate information.
This problem is easily fixed by opening a separate business account and potentially hiring a bookkeeper to handle reconciliation going forward.
Hiring an unqualified bookkeeper
Hiring professional help is a good decision but it should be ensured that someone is brought in with the required expertise. Poor bookkeeping could make the situation worse than it was to begin with.
Some business owners will keep stumbling along, handling the bookkeeping themselves. Others, who realise they need a professional, make the mistake of employing an under qualified or inexperienced bookkeeper. This is where some costly bookkeeping mistakes can be made.
It is essential for a business to invest in somebody with the right qualifications and experience to handle the bookkeeping for that specific business – even if it means paying more money than for less qualified options.
Hiring a bookkeeper who doesn’t understand important accounting principles will end up being a costly decision with little return. Not only will their bookkeeping services be of lower quality, but the money invested in hiring them – is essentially wasted.
Procrastination
The accounting aspect of a business is a common source of stress for business owners.
When the time comes to complete tax returns and business activity statements (BAS), many businesses request tax extensions in the hope of eventually organising their records. Additionally, investors may start asking questions about certain aspects of a financial report.
Simply put, the time and energy spent worrying about these issues and trying to come up with last minute solutions – isn’t worth it. The thought of letting a professional bookkeeper see the records may be daunting but is often necessary to avoid further problems and delays as the business grows.
The fact is – the more someone procrastinates on or avoids these issues altogether, the worse they will become.
If a business is reaching a point where they need to hire a bookkeeper, it is usually a good thing. It means they are growing and hiring someone shouldn’t be held off for the sake of saving money.
Bank Reconciliation
One of the fundamental bookkeeping duties is reconciling a business’s books with their bank statement every month. It is relatively simple. A business must compare its books with their bank statements and ensure there are no inconsistencies.
Many businesses however, overlook the potential opportunity that reconciliation presents. It gives them a chance to locate bookkeeping errors that need further investigation.
It is common for business owners to leave things outstanding because they weren’t needed for reconciliation in a specific month. The problem is – unless resolved, these issues will continue to pile up.
Conclusion
Talking about money and more specifically – the mistakes people are making with money, can be a rough process for some. However, business ownership isn’t about instant gratification.
Addressing the mistakes they make with bookkeeping and eventually hiring professional help – is something that will save businesses both time and money in the long run.
We see many more bookkeeping mistakes made every day. We’re dedicated to helping business owners succeed – if you’re interested in how we can help your business, feel free to drop us a message here or give us a call one (03) 9084 7440
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