5 Common Bookkeeping Mistakes Small Businesses Make
Avoid these costly bookkeeping errors that could be hurting your business finances and learn how to fix them.
As a professional bookkeeper serving Utah and nationwide, I've seen countless businesses make the same mistakes. These errors can lead to inaccurate financial reports, tax problems, and poor business decisions. Here are the top 5 mistakes and how to avoid them.
1. Not Reconciling Bank Accounts Regularly
❌ The Mistake
Many business owners skip monthly bank reconciliations or do them irregularly.
Why It's Costly:
-
⚠️
Missed or duplicate transactions go unnoticed
-
⚠️
Bank errors aren't caught
-
⚠️
Financial reports are inaccurate
-
⚠️
Tax preparation becomes a nightmare
✅ The Fix
Reconcile every bank account and credit card monthly. Set a recurring calendar reminder. If you're behind, catch up immediately—your future self will thank you.
2. Using the Wrong Account Types
❌ The Mistake
Setting up accounts with incorrect types (e.g., using an expense account instead of cost of goods sold).
Why It's Costly:
-
⚠️
Financial statements are incorrect
-
⚠️
Tax returns may be filed incorrectly
-
⚠️
You can't accurately track profitability
✅ The Fix
Review your chart of accounts with a professional bookkeeper. Make sure each account is the correct type and properly categorized.
3. Mixing Personal and Business Expenses
❌ The Mistake
Recording personal expenses in your business bookkeeping file or using your business account for personal purchases.
Why It's Costly:
-
⚠️
Inflates business expenses artificially
-
⚠️
Creates tax complications
-
⚠️
Makes it hard to understand true business profitability
-
⚠️
Can trigger IRS audits
✅ The Fix
Keep personal and business finances completely separate. If you accidentally use the business account for personal expenses, code them to Owner's Draw or Distributions, not business expenses.
4. Not Backing Up Your Data
❌ The Mistake
Assuming your accounting software automatically protects all your data or not backing up your accounting software.
Why It's Costly:
-
⚠️
Data loss from technical issues
-
⚠️
No way to recover from accidental deletions
-
⚠️
Business disruption if you can't access your data
✅ The Fix
For desktop software, create monthly backups stored in multiple locations. For online applications, export reports regularly and consider using a third-party backup service.
5. Ignoring Undeposited Funds
❌ The Mistake
Letting payments pile up in the Undeposited Funds account without properly depositing them.
Why It's Costly:
-
⚠️
Bank reconciliations become impossible
-
⚠️
Cash flow reports are inaccurate
-
⚠️
You can't track which payments have actually been deposited
✅ The Fix
Clear out Undeposited Funds regularly by creating bank deposits that match your actual bank deposits. Group payments together exactly as they appear on your bank statement.
💡 Bonus Tip: Not Using Classes or Locations
If you have multiple profit centers, departments, or locations, use accounting software class or location tracking features. This allows you to see profitability by segment and make better business decisions.