Business expansion requires a lot of resources. One such resource is bookkeeping, and many businesses neglect it. Many business owners believe that accounting is a simple process and don’t spend the time necessary to learn it. However, inadequate accounting and common bookkeeping mistakes and practices can lead to insolvency. Poor accounting puts the financial health of any organisation at risk. Here are the 5 common bookkeeping mistakes companies make.
If you’re making these mistakes, it may be time to rethink your bookkeeping strategy.
1. Not Lending Enough Time to Bookkeeping
Checking bookkeeping records is a key task for any manager. To achieve this, they must know what is happening in their business and the financial health of their business is a great place to start.
Unfortunately, some business owners are too busy with other aspects of their business and don’t have time to sit down and look at their books. In a way, this is natural. The manager is too busy with bookkeeping because they are working on other aspects of their business. But the result is that the manager can’t look at the books and learn what is going on with the business.
2. Not Tracking Small Purchases
A small purchase that isn’t tracked can become a big problem. A $10 payment for a gas station charge card is an example. It may not seem like much when it happens, but it can appear as a $100 charge in the monthly statements.
Other small charges can appear in a similar way. If a manager starts realising they are paying more money on a charge card than they thought they were, they could easily double their bill.
Sometimes the small purchases add up to a large expense. Bookkeeping is about the details, and small purchases can be big expenses.
3. Being Dependent on Accounting Software
Accounting software is a great tool for most businesses, but accounting is about the details. By relying on accounting software, you are missing out on a lot of information.
Some of the information may not be valuable, as in the case of a small purchase. Other information, especially on the financial health of your business, can be invaluable.
The software can give you an overview of what is happening in your business. But a bookkeeper or another accountant can provide additional information and insight into the financial details of your business.
4. Not Allocating the Budget Properly
Too often, business owners fail to allocate time and resources to bookkeeping in the same way they allocate time and resources to other aspects of their business. They put bookkeeping at the bottom of the list and spend the least amount of time on this aspect of the business.
The result is a very simplistic bookkeeping system that doesn’t provide the information management needs to control the business. The business owner doesn’t realise the expense, or may realise the expense but think it is too small to make a big difference.
5. Not Separating Personal and Business Expenses
Business owners make a lot of mistakes when it comes to bookkeeping. Perhaps the most common mistake is the failure to separate personal and business expenses.
This is a huge mistake because it makes it difficult to track business expenses. Business owners who don’t make time to correctly split mixed expenses lumping them into one account which could lead to GST adjustments needing to be made and paid back at year end.
Making these bookkeeping mistakes can be a costly error for any business. If you don’t track your business expenses, you will never know what you are really spending.
If you are looking for business accountants in Sunshine Coast to help you with bookkeeping, trust only Wardle Partners. We provide bookkeeping services for small businesses. Contact us today to get a quote.