Here are the top three common bookkeeping mistakes by small-business owners, and how to avoid them.
Mistake #1: Not safeguarding the business’s money. It’s not uncommon for new business owners to hire a friend or relative to do the bookkeeping. They find an easy way to have someone — anyone — handle this tedious task. Unfortunately, business owners sometimes put temptation into someone’s hands without taking any precautions.
To protect the business, the owner should always run a background check on anyone who has access to the company money. A good method is to set up a separation of duties — one person to pay the bills, another to handle the invoices. If the business is too small for two people, other choices are for the owner to learn to do the bank reconciliations or hire an outside service for oversight. The owner should sign the checks personally (no signature stamps, please) and review all the backup documentation.
Mistake #2: Not keeping the cash flowing to fund business expenses. It’s important to set a schedule to send invoices out on a consistent basis. This includes sending monthly statements to customers who haven’t paid yet. Finally, a business owner should never be afraid to call and ask for money owed. Often it is merely a lost invoice or email.
Mistake #3: Not reconciling all the business’s accounts. It is not wise to simply trust that all is well in the business’s bank accounts; it is critical they are reconciled at least monthly. This is where a business owner will catch fraud, missing deposits or charges that don’t belong. These are common errors bookkeepers encounter. Besides the bank accounts, it’s also critical to reconcile other balance sheet accounts such as credit cards, loans and payroll.
Taking steps to avoid these common bookkeeping mistakes will help bolster your business’s financial success.
Ruth Urban is president and CEO of On the Money, which is committed to helping small-business owners take control of their finances by creating systems and tracking tools, then teaching them how to use those tools to make better-informed money decisions.