Although most entrepreneurs recognise the importance of careful financial management, few want to spend their time dealing with numbers. Unfortunately, not keeping a close eye on your income and expenses can be very costly for a business.
Here are five of the most common bookkeeping pitfalls, and some simple tips for getting back on track.
1. Mixing business and personal
All too often, entrepreneurs adopt a "buy now, sort later" approach to expenses, using the same credit card for personal and professional purchases. At the end of the month, they're left poring over statements, trying to sort things out. Mixing business and personal expenses costs extra hours of bookkeeping each month, and muddies your overall financial picture.
Avoid this pitfall by using a separate credit card and bank account for business, and being disciplined about separating expenditures.
2. Neglecting to track reimbursable expenses
Receipt-tracking is a necessary part of business ownership. You need to keep track of receipts to understand spending patterns and effectively manage your company's finances. And if you want to claim deductions at tax time, you’ll need to submit receipts along with your tax return.
But far too many business owners take a haphazard approach to collecting and organizing receipts—especially while on-the-go, where a whopping 50% of their expenses are generated. Get the deductions you deserve and simplify tax prep by using an expense-tracking app. Options like Expensify can record kilometres, billable hours, and other expenditures, as well as generate expense reports. Plus, many of these apps sync seamlessly with your business bank account and accounting software.
3. Not taking advantage of technology
Are you still relying on manual accounting methods? While basic spreadsheet tools can get the job done, they leave the door wide open for human error. Mortgage loan giant, Fannie Mae, once uncovered a $1.1 billion error on their Excel spreadsheet, citing "honest mistake" as the cause.
What's more, manual methods simply can't match the technological benefits offered by software like Xero or MYOB. These systems track invoicing, link with your credit card and business account, automatically import transactions from your bank or credit card, organise expenses, and generate insightful financial reports.
4. Not keeping accounts up to date
Let's be frank. Most business owners don't look forward to that weekly appointment with "the books."In fact, many entrepreneurs cite bookkeeping as their most dreaded responsibility and will find a host of reasons to avoid it.
5. Doing it all yourself
It is completely understandable for budget-conscious entrepreneurs to try to cut costs by handling bookkeeping on their own. However, taking advantage of professional help—even on a part time basis—can generate substantial savings of time and money over the long term.
Time to get savvy about bookkeeping. The biggest pay off? Saving time with these bookkeeping tips will allow you to invest your talents and energy where they will be most profitable.