Top 8 Bookkeeping Mistakes by Small Businesses

Bookkeeping may not seem like a priority for small business owners, but managing your financial records correctly can mean the difference between growth and stagnation.?

Poor bookkeeping leads to tax issues, cash flow problems, and even business failure.?

Based on data from the Small Business Administration (SBA), 20% of small businesses fail within the first year, and one of the main reasons is poor financial management.?

In this blog, we will uncover eight common bookkeeping mistakes and how you can avoid them.

Mistake 1. Not Keeping Accurate Records

This one bookkeeping mistake might seem obvious, but you'd be surprised how many small business owners need help with accurate record-keeping.

According to a survey conducted by SCORE, 82% of small businesses that fail to keep accurate financial records encounter cash flow problems.

Skipping a receipt here or forgetting to log a payment there might not feel like a big deal, but over time, these small mistakes add up.

Accurate records mean knowing four critical details about every transaction: the date, the account from which the money came, the amount, and a brief description.?

Missing any of these details can lead to big issues when it’s time to reconcile accounts or file taxes.?

How to Avoid It

Take the time to double-check your records. If you use tools like QuickBooks or Xero, much of this information will be automatically pulled in, but you still need to verify everything.

Make it a habit to update your records regularly, and don't wait until the end of the month.

This will help small business owners like you to avoid unnecessary bookkeeping mistakes later on.

Accuracy now means fewer headaches later.?

Mistake 2. Not Reconciling Accounts

When accounts aren’t reconciled, discrepancies can go unnoticed.

This can lead to undetected fraud, cash flow mismanagement, or costly bookkeeping errors down the line.

According to research from the Association of Certified Fraud Examiners, businesses lose 5% of their revenue annually due to fraud, and failure to reconcile accounts is often a factor.?

Reconciling your accounts simply means matching your bookkeeping records with your bank statements to ensure everything lines up.

As a small business owner you should keep a close eye on this task.

How to Avoid It

Make it a routine to reconcile your accounts daily, weekly, or monthly, depending on your needs, to prevent bookkeeping errors.

This involves cross-checking your internal financial records with external bank statements to ensure all transactions are accurately recorded.

Most accounting software can automate this process, allowing you to spot errors, unauthorized transactions, or discrepancies early on and take corrective measures to improve the financial records.

Mistake 3. Not Staying Up to Date with Tax Laws

Tax laws fluctuate every year, with changes being added, altered, or removed.

At Wishup, we've observed this as a common bookkeeping mistake, affecting nearly every second business owner we work with.

Many are simply unaware of the latest tax regulations.

This oversight often results in costly financial penalties, interest charges, and missed opportunities for tax deductions or credits, leading to poor business decisions.

In the U.S., small businesses pay an average effective tax rate of 19.8%, according to the Tax Foundation.

How to Avoid It?

Stay informed about tax law changes by subscribing to updates from the IRS, AICPA (American Institute of CPAs) newsletters, checking with your state’s Tax and Accounting boards, and consulting with a tax professional .

A CPA will help you stay on top of tax laws that may affect your business.

Mistake 4. Not Communicating Effectively

Poor communication with your bookkeeper, or accountant can lead to misunderstandings and financial errors.

A study from the International Journal of Accounting and Finance found that businesses with clear communication practices had a 33% lower error rate in financial reporting.

Clear, open communication makes it possible for everyone to be on the same page and helps prevent mistakes.

How to Avoid It

Schedule regular check-ins with your bookkeeper. Keep them informed of any business transactions, expenses, or anything else that might affect your finances.

Clear, consistent communication will help you avoid this common bookkeeping mistake.

Mistake 5. Incorrectly Categorizing Expenses

Incorrectly categorizing expenses will lead to inaccurate financial statements and potentially affect tax deductions.

For example, you spend 500 bucks and categorize it as meals but it should have been job supplies, you’re going to miss out on a $250 deduction.?

A 2019 report by Bench showed that nearly 25% of small business owners mistakenly categorize their expenses.

This common bookkeeping mistake can misinterpret your financial reports and lead to incorrect tax filings.

How to Avoid It?

Familiarize yourself with common expense categories and their proper use.

Have a clear chart of accounts and stick to it. Consult a CPA if you’re unsure how to classify specific expenses.

Software like QuickBooks can help you categorize automatically, but it’s still important to review everything and ensure it's being sorted correctly.

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Mistake 6. Wasting More Time Than You Need To

One of the most inefficient bookkeeping mistakes is wasting time on manual tasks that could be automated.

Small business owners spend an average of 120 hours annually on tax preparation alone, according to a report from the Small Business Administration.?

Wasting time on manual bookkeeping doesn’t just affect productivity—it increases the chance of errors and takes time away from growing your business.

How to Avoid It?

Invest in cloud-based accounting software that automates routine bookkeeping tasks like invoicing, payroll, and expense tracking.

Automation allows you to focus on growing your business rather than getting bogged down in the day-to-day bookkeeping grind.

Mistake 7. Not Hiring a CPA

Bookkeeping might seem like something you can handle on your own, especially when you’re starting out, but not hiring a Certified Public Accountant (CPA) can be a costly bookkeeping mistake.

A CPA isn’t just for tax season – they can help you with strategic financial planning, keep you compliant with regulations, and prevent you from making expensive errors.

How to Avoid It?

Even if you can’t afford a full-time CPA, schedule half-yearly or annual consultations to review your finances.

They can offer advice on taxes, investments, and cost-saving strategies you may not be aware of.

Mistake 8. Hiring an Inexperienced Bookkeeper

Hiring a bookkeeper who lacks experience or knowledge in your industry can lead to errors, missed deductions, or even legal trouble.

According to a report by Xero, 60% of small business owners found that bookkeeping errors resulted in inaccurate financial reporting.

Your bookkeeper should understand the ins and outs of your business and be able to provide accurate financial reports.?

Wishup Bookkeeper’s are trained in IFRS, GAAP or whichever system you follow and have experience working with 15+ accounting tools.

They can handle your business’s bookkeeping needs effectively.

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How to Avoid It

Take your time when hiring a bookkeeper.

Look for someone with experience in your industry and who has a track record of success.

Conduct interviews, ask for references, and ensure they have the qualifications needed to manage your books correctly.?

Last Minute Advice

At the end of the day, avoiding these bookkeeping mistakes is about staying consistent and paying attention to the details.

By keeping accurate records, reconciling accounts regularly, staying informed about tax laws, and getting professional help when needed, you can avoid the common financial pitfalls that trip up so many businesses.

Taking early measures now will save your time, stress, and money down the road.

Remember, it’s not about being perfect—it’s about being consistent and proactive with your bookkeeping.

If you need help with your bookkeeping, schedule a free consultation or email us at [email protected]

Frequently Asked Questions About Bookkeeping Mistakes

Why is it important to separate personal and business finances??

Separating personal and business finances is important for clear bookkeeping, accurate tax reporting, and protecting your personal assets.

It makes tracking easier, helps you claim the correct tax deductions, and protects your personal finances if your business faces any legal issues.

How often should I reconcile my bank statements??

Make it a routine to reconcile your accounts daily, weekly, or monthly, depending on your needs, to prevent bookkeeping errors.

This involves cross-checking your internal financial records with external bank statements to ensure all transactions are accurately recorded.

What happens if your bookkeeper makes a big mistake?

If your bookkeeper makes a big mistake, it could cost you money, create tax problems, or pay penalties to the government.

Sometimes the mistakes can be prevented, other times not. If a mistake is found, the error is reversed and corrected.

What is the biggest difficulty with bookkeeping?

The hardest part of bookkeeping is keeping track of every dollar coming in and going out and making sure everything is recorded correctly.

How can bad bookkeeping destroy your business?

Bad bookkeeping causes cash flow problems, leads to tax issues, and results in poor business decisions, which can ultimately cause your business to fail.

How can bookkeeping help with tax preparation?

Good bookkeeping keeps everything organized, making it easier to file taxes correctly and avoid mistakes or penalties.

Why should a small business hire an accountant?

An accountant helps manage your money, makes sure you're paying the right amount of taxes, and keeps your business's financial health in check.

Why should a small business hire a bookkeeper?

A bookkeeper handles daily money transactions like tracking expenses and payments, helping your business stay organized and run smoothly.