Bookkeeping

The bane of small business owners everywhere. It’s not exactly the most thrilling task, but it’s crucial for keeping your finances in check.

Unfortunately, it’s also easy to make mistakes.

But don’t worry, you’re not alone. We’ve rounded up the top 5 bookkeeping mistakes small business owners make, so you can learn from our errors. After all, what’s the saying? “To err is human, to really screw things up, you need a small business.”

Mixing Personal and Business Expenses

We get it, sometimes it can be hard to keep track of what’s for business and what’s for pleasure. But trust us, it’s not a good idea to mix the two. To avoid this, it’s important to have separate bank accounts, and credit cards and use them exclusively for business transactions. This will help you to keep records clean, and all the transactions are in one place to be easily tracked.

We all know that taxes are a necessary evil, but mixing personal and business expenses are like trying to mix oil and water. And just like oil and water, the CRA will see right through it. Suddenly that weekend getaway you took 'for business purposes' isn't looking so legitimate.

Not Keeping Track of Receipts

“Oh, I’ll just hold onto this receipt for safekeeping”. Fast forward to tax time and you have a shoebox full of receipts and no idea what they’re for. It's important to keep all the receipts and invoices as you'll need them as proof of expenses for tax purposes. You can use a shoebox, or better yet, use a digital receipt-capturing app that makes it easy to keep all your receipts in one place.

Do you know the saying, “a place for everything and everything in its place?” Well, that's great and all, but if you don't have a place for your receipts, you're in for a wild ride come tax time. Picture this: You, surrounded by stacks of crumpled receipts, have no idea what they're for. It's like trying to find a needle in a haystack, but instead of a needle, it's your deductible expenses, and instead of hay, it's a pile of indistinguishable wads of paper. Yea, let’s not do that.

Skipping the Reconciliation

“It’s just a small mistake, it’ll balance out next month.” Except it doesn’t.

Skipping the reconciliation process is like trying to put out a fire with gasoline. it only makes things worse. Reconciliation is the process of matching the transactions in your bookkeeping records with the transactions in your bank statement. By reconciling regularly, you can spot errors, and prevent fraud and it ensures that your financial records are accurate and up-to-date.

Reconciliation is like a trip to the dentist, you might not want to do it but it's necessary for a healthy financial record. Skipping it, is like avoiding your dentist appointment for years and then being shocked when you need a root canal. But unlike a root canal, reconciling regularly won't make you scream and cry, it'll just give you peace of mind and a better understanding of your financial health.

Not Tracking Inventory

“I know we have some left, I’ll just order more.” This might work for a while, but eventually, you’re going to run out of stock and miss out on potential sales.

Tracking your inventory is essential for managing your costs and knowing when to order more. By keeping track of your inventory levels, you can predict sales trends and adjust your inventory accordingly. This will help you to avoid stockouts and reduce the amount of money you tie up in inventory.

Tracking inventory is like keeping tabs on your teenager, you might think you know what's going on, but one day they'll surprise you with a new piercing or a failing grade. Similarly, if you don't keep track of your inventory, you might be caught off guard by a sudden spike in demand, or worse, a stock out. But unlike a teenager, inventory management is easy to control, it just takes a little bit of attention, and you'll be able to predict sales trends, adjust accordingly and avoid any potential drama.

Not Reviewing Financial Statements

You’ve done all the hard work of keeping your books, but what’s the point if you’re not going to review them?

Many small business owners make the mistake of creating financial statements and then ignoring them. By regularly reviewing your financial statements, such as income statements, balance sheets, and cash flow statements, you can spot trends, make better decisions, and adjust your business strategy accordingly. It’s important to review them at least once a month or even more frequently to have an accurate picture of your financial situation.

Reviewing financial statements is like watching a cooking show, it's boring to watch it happen, but when it's done, it's satisfying and delicious. Ignoring them is like skipping the cooking show, and just ordering takeout, it might work for a while, but eventually, you'll be left with a cold, unsatisfying meal and a kitchen full of dirty dishes. But unlike takeout, regular review of financial statements will give you a clear picture of your financial situation, help you spot trends, make better decisions and adjust your business strategy, all while keeping your kitchen (metaphorically speaking) clean.

Bookkeeping may not be the most exciting task, but it's essential for keeping your finances in check. By being aware of the common mistakes small business owners make, such as mixing personal and business expenses, not keeping track of receipts, skipping the reconciliation process, not tracking inventory, and not reviewing financial statements, you can take steps to avoid them.

Remember, by taking the time to properly manage your bookkeeping, you'll be able to make better decisions, improve your financial situation, and set your business up for long-term success. And, who knows, you might even enjoy it!