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5 Biggest Bookkeeping Mistakes & Tips To Avoid

Maintaining correct financial records is critical to the success of any organization. However, many small business owners and inexperienced bookkeepers make frequent mistakes that impede their financial management. 

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Chart of Accounts (COA); What’s all the hype?

As a business owner with a set of “books”, you’ve probably come across this thing called the “Chart of accounts”.  What is this, and why is it so critical to consider? (Psst, your books are the backbone of your business.  Period.)  In other words, it’s the index, codex, listing of all the categories of the financial transactions in your business.  

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Why Is It A Good Practice To Reconcile?

Reconciliation is one of those painful “best practices” that many business owners avoid, ignore, forget about or put off.  In the daily grind, this hardly seems critical.  And without bookkeeping software to streamline the process, reconciling your Balance Statement is downright tedious and feels like a waste of time.

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Introducing your BFF: Bookkeeping First Five!

When starting a new business, you must complete certain critical steps to ensure a smooth and successful launch. It is critical to thoroughly arrange every aspect, but there is one area that requires quick attention: your financial needs. Even the most promising business concepts might fail if they are not properly managed financially.

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Bookkeeper vs Account; Why Do You Need Both

Everyone knows they need an accountant, and few business owners have the time or inclination to do their taxes, let alone do them correctly.  So why do they manage their books which require more time, more specific knowledge, and are very easy to do incorrectly?  Every business needs a bookkeeper, too!

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Four Reasons To Hire A Bookkeeping Service

A professional bookkeeping service manages your financial data comprehensively and reliably, ensuring that income, expenses, and other key financial information are accurately tracked. This service allows you to focus on the most important parts of running and growing your business.

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Is My Employee A 1099 Contractor Or Not?

There is a lot of buzz around the question of how to classify certain employees.  Some employees expect to be paid as independent contractors, others wish to be classified as W2 employees.  Likewise, employers have different tolerances and preferences for this as well.  

Read More

Can’t you just balance your business checkbook?

Bookkeeping is not as simple as balancing a checkbook – nor should it be.  Try this simple exercise: grab your personal checkbook, if you still use one.  Now open it up and tell me how much you made in March… I’ll wait.

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5 Biggest Bookkeeping Mistakes & Tips to Avoid Them

  1. One Bank Account – having only one account in a business is to a business owner like having only one room in a house.  All your furniture, kitchen, bathroom, bedroom all in one room.  It may be a lovely room, big enough to hold it all.  But it is still just one room.  There are reasons we devise furniture and rooms for different functions; we have different needs at different times.   So does your business.
  1. Keeping Your Books In Excel – do you ride a bike everywhere?  You could.  You could take back roads all the way from New York to Los Angeles on a bicycle.  You’d have strong legs and probably poor hygiene, perhaps pneumonia.  And not a lot of time for anything else.  The bookkeeping platforms are the cars, plain and simple.  Faster, more efficient and certainly a smarter way to travel.
  1. Not Reconciling Your Accounts Monthly – do you change the oil in your car routinely?  Most cars are fairly forgiving in this regard, and you can last a while without giving it this little kiss of TLC for a time and she’ll still run for you.  Perhaps not as efficiently, and eventually, she will stop working.  This is what happens when you don’t reconcile monthly.  You may get lucky and get away without this for a time, but eventually it just stops working.  That’s your business, not your car – your business stops working.
  1. Not Forecasting – only looking at the past, and maybe the present is not enough.  It’s the future that can take down your business.  Even looking forward only a week or two can help you navigate upcoming expenses, but in reality it should be a month or more.  Know what expenses you have coming and know what money you have outstanding and when it may arrive.  This is all fairly simple, yet can be robust and supported by previous data if tracked correctly.
  1. Poor Record Keeping – receipts, bills, invoices, all of it should be kept and properly organized.  Tedious though it may be, the paper copies are required if there is ever an audit.  Originals are the gold that will save your business in an audit.  Have backups, scan them, make copies of checks or original documents that you sign.  Backup your business books and any other data in your business.  Keep at least three years, five is better.

Building a client’s banking is usually the first step, then getting the preliminary forecast constructed.  Next, reviewing the Chart of Accounts in the bookkeeping software to ensure that all reimbursable and deductions are captured, then looking at receivables followed by payables.  Reconcile every previous month’s account, including the Paypal, Stripe or Venmo accounts you may have.  Actually reading the financial statements and tracking trends in certain parameters will allow insights that may save your business some significant setbacks.

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Chart of Accounts (COA): What’s all the hype?

Bookkeeping is not as simple as balancing a checkbook – nor should it be.  Try this simple exercise: grab your personal checkbook, if you still use one.  Now open it up and tell me how much you made in March… I’ll wait.

Still, adding and searching?  Are you adding your net income?  What was your gross?  How much did you pay in taxes?  How much did you spend on utilities last month?  How about just on gas?

The list goes on; I think you get the point.  Yes, the list of transactions (your checkbook) needs to happen – yet there is so much data that you need to know about the finances of your business that a simple checkbook or account reconciliation doesn’t quite cut it.

So, here are the five reasons why you shouldn’t run your business finances out of a checkbook:

  1. Tracking Expenses by Vendor

There will be times when your records and your vendors’ records don’t match.  When this happens, having bookkeeping software implemented to track these expenses will save you hours of research and argument.  Also, this is a great way to tell how you are doing on your budget and where you might need to start cutting back.  

  1. Tracking Income by Client

Like vendors, clients may not keep track of their payments to you as well as you should.  They depend on you to know how much they owe, but when they disagree, they need to see the paperwork.  Then again, so will the judge,  

  1. Job Costing

When you agree to a job, you want to know that you are actually making money and not spending more to do the job than you are getting paid.  Having a way to notate transactions to a job or client is invaluable in this process.  Job costing will provide valuable data that will either make or break your business.

  1. Inventory

Clearly, your checkbook doesn’t have a place to notate inventory coming in or that going out.  Without a way to track the most valuable asset a business has, you’ll never have a clear idea of what your business is worth, how much potential income you have, and what else you may need.  Tracking inventory will help you determine many important decisions in your business.

  1. Reporting

Whether for your own decision-making, taxes, financing, or investing, being able to provide a Balance Sheet, Cash Flow Statement or Income Statement is crucial to the function of your business.  Most software used in accounting and bookkeeping will provide many more useful reports and data that will keep you making the best decisions for your business.

Your business is a complex legal entity with its own bank accounts, finances, budget, and value; don’t do yourself or your business the disservice of treating the books like a checkbook!

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Why reconcile?

Reconciliation is one of those painful “best practices” that many business owners avoid, ignore, forget about or put off.  In the daily grind, this hardly seems critical.  And without bookkeeping software to streamline the process, reconciling your Balance Statement is downright tedious and feels like a waste of time.

Reconciliation is like insurance: until there’s an issue, it feels like a waste.  However, reconciliation is a risk-management measure.  It assures accuracy, compliance, and retention.  But what is reconciliation?

Reconciliation is simply comparing internal and external records to ensure that the information on both ends is accurate.  In most cases, the bank keeps one set of records and you keep another.  Then at the end of the month, you compare the two to ensure accuracy on both ends.  

This is why bookkeepers want receipts, invoices, bills, and other documentation of daily transactions.  Yes, it is absolutely on your bank feed – and that’s an external record.  We need the internal ones or the so-called “reconciliation” is just a confirmation of the bank’s information.  Translation: the bank is telling you what’s on your records.  Period.

Here are three reasons why that is a bad approach to bookkeeping: 

  1. Banks are human

Humans run banks.  We all know humans make mistakes.  It’s just a fact.  So by doing what we bookkeepers call “bank feed accounting”, you are trusting every human who works at a bank to be 100% accurate 100% of the time.  And that’s also assuming every one of them is 100% trustworthy with 100% integrity.  

  1. Banks are robots

Even the smallest family-run bank is run with computers.  Computers have errors in logic all the time.  After all, they were programmed by humans (see reason #1).  They are a tool, like a hammer, and can cause havoc when they aren’t running properly.  Components break down, programming gets corrupted, files get lost, and the list goes on.  

  1. Banks are businesses

Banks are running a business, not a charity.  They are making money off your money.  And like most businesses, as much as they may care for their clients, it’s not their problem if your cashier is swiping from the till.  It’s not their job to discover fraud or let you know that your account is $2,000 short.  

Ultimately, your accounts are yours.  It’s no one’s job but yours to ensure their accuracy.  Your bookkeeper can’t read your mind or infer from your bank what is going on in your business.  Like your bank, without internal documentation, there is no way to know when someone might be stealing, or when money is not where it belongs.  So do the work to get documentation to your bookkeeper as quickly as you can to ensure proper reconciliation and protect your money!!!

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Introducing your BFF: Bookkeeping First Five!

  1. Banking

At the bare minimum, we always recommend a minimum of a checking and savings account.  These must be in the business’ name, not yours.  For most businesses, the Profit First model is a great way to get started on the right foot.  Simply put, you’ll have five checking accounts – I know it seems like a lot, but you won’t deal with all five every day.

  1. Bookkeeping Software

Time to get in it and pick a platform for your bookkeeping.  Most businesses use QuickBooks Online, but there are many to choose from, including Xero, Freshbooks, Oracle, Peachtree, etc.  Each has its pros and cons, features, bells, and whistles. Most come in tiers, so pick the level that is the right size for your business now.  You can change it later without any fuss. 

Once you get into your bookkeeping platform, the first thing you’ll need to do (aside from entering all your business information) is set up your Chart of Accounts.  This keeps your business finances organized and generates financial reports.  

  1. Budget Building

If you thought you’d have a business without a budget, well, you may as well throw in the towel right now.  This is absolute: without a budget, your business will not be successful.  Tracking expenses, forecasting income, and knowing how much to save is the bare minimum.  Also, this needs to be dynamic – as in you are reviewing and updating it monthly.  

  1. Best Practices

This is the meat and bones of bookkeeping – the daily grind.  You’ll need to know your daily/weekly bookkeeping tasks and your monthly/quarterly/annual tasks.  List them out, put them in a calendar, spreadsheet, pillow embroidery – whatever works!

Then you have to do them!  Daily cashouts, deposits, and transaction processing.  Weekly deposits, payroll, and invoicing.  Monthly budget, goals, cost analysis, reconciliations, and reporting.  Quarterly reporting, goals, and taxes.  Annual reporting, goals, and taxes.  Just to name a few.

  1. Bookkeeper & Accountant

Every business needs both!

I’ll say it again as it bears repeating: every business needs an accountant AND a bookkeeper.  Some firms do both, and firms that do one or the other – that part doesn’t matter as much.  

An accountant is your business strategist.  They look at the tax side and figure out your business strategy from that vantage.  From day one to whatever exit strategy you’ve elected – they can help you figure that out as well.  Their focus is the big picture, your business as a whole tax-paying, compliant entity.

Bookkeepers are in the trenches with you.  They will be monitoring your expenses, tracking your spending, projecting your income and so much more with one goal in mind: your business goals. They help you budget, bookkeep and be accountable (pun intended) for those best practices.

Accountants help you draw the map, while bookkeepers guide you and keep you on the path.

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Bookkeeper vs Account; Why Do You Need Both

Remember the old days when you could roll up to the local gas station and the attendant would not only pump your gas but also ask you to pop the hood, check your oil, and then wash your windshield?  Ok, the Millennials out there are going, “Uh, no!”, but that’s what would happen at many local gas stations until the mid-90s, at least in New England.  If you were a local, you knew the attendant’s name, Tom, and he would ask about your life, wife, kids, etc while the gas was pumping.  Oh, and yes, you would provide a tip for his extra attention.  

Occasionally, Tom would notice that your sticker was coming up or that your oil was looking a bit dark and recommend an oil change or set up an appointment for inspection.  He’d help you keep on top of your maintenance, not that you couldn’t see these things yourself, but just an extra set of eyes.  He might also note that your belts looked frayed, your driver’s side rear tire looked a bit low, or other fluids were low.  He may hear an odd sound you never noticed over the radio or a smell that only was noticeable with the hood open.  Tom had your back. 

On Tom’s suggestion, you would also bring your car to the same garage for routine work, tune-ups, inspections, etc.  The mechanic, Joe, was always thorough, reliable, and honest; you trust him, but you know he doesn’t know you as Tom does.  You didn’t see him all the time, but you know Tom has a good eye and ear and Joe will take care of you. 

Your business finances are the same: your bookkeeper is the attendant.  They have an ear under your hood, listening for problems, they are checking the fluids, filling as needed, pumping your gas, kicking your tires, washing your windshield, and asking about your daughter’s dance recital.  They also know when you need to see your mechanic …er, accountant.  That’s the difference between an accountant and a bookkeeper; the bookkeeper is all about the day-to-day finances of your business and helping to track the dollars and cents, organize it all, one transaction at a time, and keep an eye on your trends to let you know if something needs to be addressed. 

Your accountant sees your business finances at a higher level or can drill down when there is an issue.  Where a bookkeeper deals in each days’ transactions, an accountant looks at months or even years at a time.  They are big picture focused while your bookkeeper is focused on other day-to-day concerns (will you have enough in your account to cover next week’s bills, for example).  In truth, you need both.  Your bookkeeper is not only doing the busy work of your books, but they are also keeping an eye out for problems before they happen and helping you avoid pitfalls.  They are prepping your books for your accountant to review at year-end.  They may even be a go-between with your accountant if you have questions.  They help control your spending, assist in navigating dips in income and track other important data.

 Everyone knows they need an accountant, and few business owners have the time or inclination to do their taxes, let alone do them correctly.  So why do they manage their books which require more time, more specific knowledge, and are very easy to do incorrectly?  Every business needs a bookkeeper, too!

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Four Reasons to Hire a Bookkeeping Service

  1. You know what you know.

Because you can look at a receipt and immediately remember that you got a check from Sally Service, doesn’t mean you remember that you forgot to enter the payment on the invoice.  Later you remember getting the check from Sally as you enter it on your Deposit Slip, and that you still need to enter the payment.  That’s when Walter Worker walks in with a customer complaint that needs to be addressed.  Now you won’t see that again until you try to reconcile your books at the end of the month and your numbers are off, and at that point, you may or may not remember that it was Sally’s check you needed to enter!

With a bookkeeper, they will question why the payments don’t match the deposit slip when you submit it for the record.  Now one or two of these kinds of occurrences is not a huge deal, but having five or six of these in one month and you’ve got a real mess!  

  1. You need more time.

Maybe you’ve missed one too many of little Amy’s dance recitals or you’ve not taken your wife out in a while.  Maybe you saw a customer’s name on the list and wished you’d been free to talk to them when they came in; you still have their baking dish in your car!  Maybe you miss actually slinging on your tool belt and being on the job site with the guys, walking the I-beams, and reminding Henry to put on his safety goggles.  Maybe it’s been too long since you’ve worked on your swing.  Whatever the case, you need less time in the office doing the books and more time doing other things.  

Having a professional bookkeeper is like having an extra set of hands.  That small investment will pay itself triple-fold when your daughter waves at you from the stage, or you breathe in the fresh air at the club.  Henry will have his glasses on and you’ll get that baking dish out of your trunk!  

  1. No one else wants to do it.

Let’s be real; no one (other than bookkeepers) actually likes keeping the books.  It’s not something most people do for funsies.  So why not let the people who enjoy it take it off your task list?  Like mowing your lawn, getting takeout, or cleaning the office – there’s a service for that!  Why not use it?

You would not do the wiring in your office (unless you are an electrician), or set up your company network (unless you are an IT specialist).  Why do the services bookkeepers choose to do for you?  Let the number crunchers get their geek on!

  1. They know what you don’t know.

If you need surgery, do you go to the surgeon or try to figure out how to do it yourself?  How about if you need your car fixed?  Your bathroom re-done?  You get the point…  


DIY bookkeeping is setting you up for some catastrophic mistakes that you won’t know you’ve made until it’s too late.  Bookkeepers know what you don’t know and they can help you avoid those common mistakes.  Even during the initial stages of your bookkeeping, a bookkeeping service can help you figure out the right software set up to organize your business information with your goals in mind. 

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Is my employee a 1099 Contractor or not?

There is a lot of buzz around the question of how to classify certain employees.  Some employees expect to be paid as independent contractors, others wish to be classified as W2 employees.  Likewise, employers have different tolerances and preferences for this as well.  

The unfortunate reality is that there are guidelines that govern this distinction. It is not really up to the employee or the employer.  Those who disregard these guidelines, do so at the risk of incurring some very heavy fines.

Per the IRS and Department of Labor regulations, for 1099 to apply, the employer must answer “yes” to all three: 

___   The worker is free from the control and direction of the hiring entity in connection with the work’s performance, both under the contract for the performance of the work and in fact.

___   The worker performs work that is outside the usual course of the hiring entity’s business.

___   The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

This is known as the “ABC test”.  To help clarify these, imagine you hired me as your bookkeeper.  

For the first test, this means that the work on your books and when it took place would not be decided by you.  When and how I meet the obligations of your agreement would be in my control.  So, if you govern the hours your “employee” works, this should be a “no”.

For the second test, this means that I’d not be in your office, nor would the work being done be subject to the processes involving the running of your business. Specifically, let’s say, I structured my time to work on your books on Tuesdays.  Monday through Wednesday would work as usual for you, no change in the course of business whether I am actively working on your books, or not.  Another example would be if someone were building something you sell, that would be an employee; however, if they are building you a new window in your office, that would be an independent contractor.

Lastly, the third test means that when not working on your books, I still typically work as a bookkeeper; I’m not a carpenter, physical therapist, or dog walker acting as a bookkeeper.  Because Profit & Equity, LLC is an established limited liability corporation (LLC), this covers the test as a solid “yes”.  If however, you are hiring a “sole proprietor” to work on something for you, there might be some questions raised if the first two tests are not a very solid “yes”.

So, bottom line: if there is a “no” for any of the three conditions above, the employee should be paid as a W2 employee.  

It’s not always that black and white.  It also varies by state.  However, the penalties are quite severe.  The IRS and the Department of Labor can levy individual penalties for each infraction they find.  This could include all of the unpaid withholdings that weren’t applied, interest on unpaid worker’s compensation insurance and taxes, a $1000 fine per employee per year, and even imprisonment for up to one year per infraction.  This would quickly add up to thousands of dollars if lost wages due to imprisonment becomes a factor.

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Can’t you just balance your business checkbook?

Bookkeeping is not as simple as balancing a checkbook – nor should it be.  Try this simple exercise: grab your personal checkbook, if you still use one.  Now open it up and tell me how much you made in March… I’ll wait.

Still, adding and searching?  Are you adding your net income?  What was your gross?  How much did you pay in taxes?  How much did you spend on utilities last month?  How about just on gas?

The list goes on; I think you get the point.  Yes, the list of transactions (your checkbook) needs to happen – yet there is so much data that you need to know about the finances of your business that a simple checkbook or account reconciliation doesn’t quite cut it.

So, here are the five reasons why you shouldn’t run your business finances out of a checkbook:

  1. Tracking Expenses by Vendor

There will be times when your records and your vendors’ records don’t match.  When this happens, having bookkeeping software implemented to track these expenses will save you hours of research and argument.  Also, this is a great way to tell how you are doing on your budget and where you might need to start cutting back.  

  1. Tracking Income by Client

Like vendors, clients may not keep track of their payments to you as well as you should.  They depend on you to know how much they owe, but when they disagree, they need to see the paperwork.  Then again, so will the judge,  

  1. Job Costing

When you agree to a job, you want to know that you are actually making money and not spending more to do the job than you are getting paid.  Having a way to notate transactions to a job or client is invaluable in this process.  Job costing will provide valuable data that will either make or break your business.

  1. Inventory

Clearly, your checkbook doesn’t have a place to notate inventory coming in or that going out.  Without a way to track the most valuable asset a business has, you’ll never have a clear idea of what your business is worth, how much potential income you have, and what else you may need.  Tracking inventory will help you determine many important decisions in your business.

  1. Reporting

Whether for your own decision-making, taxes, financing, or investing, being able to provide a Balance Sheet, Cash Flow Statement or Income Statement is crucial to the function of your business.  Most software used in accounting and bookkeeping will provide many more useful reports and data that will keep you making the best decisions for your business.

Your business is a complex legal entity with its own bank accounts, finances, budget, and value; don’t do yourself or your business the disservice of treating the books like a checkbook!

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