Top 6 Small Business Accounting Mistakes You Might be Making — and How to Fix Them
Running a small business often means wearing multiple hats, and sometimes that includes being your own accountant. While managing your own books makes sense when you're starting out, your finances usually get trickier as your business grows. Here are six common small business accounting mistakes you might be making, along with some straightforward solutions to fix them.
Mixing personal and business finances
We get it — when you're just starting out, using your personal checking account for everything seems like the path of least resistance. But mixing personal and business finances is a recipe for confusion down the road.
Why it’s a problem
It makes tracking your business expenses a nightmare.
It can complicate your tax situation.
You could put your personal assets at risk.
Solution: Take a few minutes to open separate business accounts and stick to using them for all your business transactions.
2. Lax bookkeeping
When you're juggling a million tasks, bookkeeping often falls by the wayside. Before you know it, tax season arrives and you're drowning in a year's worth of receipts and transactions.
Why it’s a problem:
Catching up on months of bookkeeping is incredibly time-consuming and stressful.
You might miss important deadlines or deductions in your rush to catch up.
You won't have a clear picture of how your business is doing throughout the year.
Solution: Block out a little time each week for bookkeeping and use good accounting software to make it easier. If you're swamped or things get complicated, there's no shame in bringing in a professional bookkeeper.
3. Not tracking expenses accurately
Every dollar counts in a small business, whether you're buying major equipment or just grabbing office supplies. Yet many business owners treat expense tracking as an afterthought.
Why it's a problem:
You might miss out on valuable tax deductions.
It's harder to understand your true profitability.
You can't identify areas where you might be overspending.
Solution: Keep all your receipts and develop a system for categorizing expenses. Many accounting software products let you snap photos of receipts with your phone, making it easy to capture expenses on the go. Remember, small expenses can add up over time.
4. Not reconciling bank statements fast enough (or at all)
Bank reconciliation isn't always the most exciting, but it's crucial for catching errors and preventing fraud.
Why it's a problem:
You might miss fraudulent charges or bank errors.
Your financial statements won't be accurate.
Working with the wrong numbers can lead to cash flow issues.
Solution: Make reconciling your accounts a monthly habit. Most accounting software makes this pretty painless, and you'll sleep better knowing your numbers are accurate.
5. Overlooking cash flow management
While profit and loss statements are important, they're not the whole story. Your business needs healthy cash flow to thrive.
Why it's a problem:
You might struggle to pay bills even when you're profitable on paper.
You could end up with unnecessary debt or late fees.
Growth opportunities might pass you by if you're short on cash.
Solution: Get in the habit of forecasting your cash flow. Consider offering early payment discounts or negotiating better payment terms with vendors to keep cash flowing smoothly.
6. Mishandling payroll
If you have employees, payroll mistakes can be really really costly, both financially and legally.
Why it's a problem:
Messing up withholdings can lead to penalties for your business.
Misclassification of employees as contractors can create legal issues.
Pay errors can damage your employees' morale and trust in your business.
Solution: Make sure you understand your payroll tax obligations inside and out. Consider using payroll software or working with a payroll service. Keep up with labor laws and regularly review how you classify your workers.
While there's nothing wrong with managing your own books, knowing when to ask for help is just smart business. A good accountant does more than keep you compliant — they can help your business grow and thrive.
Feeling overwhelmed? Or just want to make sure you're on the right track? At Archer Lewis, we're here to help you build a solid financial foundation for your business. Learn more.