We would normally just throw a sloppy dress under the rag when we don’t like it just as easy as we stop communicating with that one friend we’ve always hated. But ignoring sloppy bookkeeping habits comes with an expensive price tag because it involves revenues, penalties at tax time and long hours of cramming for correcting mistakes.
Business owners understand how important bookkeeping is in keeping their business up and running. You must find out if you're gaining or losing profits, what adjustments can you make to increase your profitability, and if hiring employees is something you can afford. When you have a timely and accurate bookkeeping, you’ll be able to provide answers to your own questions to improve business operations and earnings.
Therefore, if you fall under the bad bookkeeping habits we listed below, you may want to make some changes as soon as possible before it’s too late.
1. Unorganized Papers
Do you or your bookkeeper have a pile of papers in the table composed of files and invoices that aren’t paid yet? Does your filing cabinet look like a bomb went off inside it because of the many papers that most likely haven’t been checked? The mess tells you to get your bookkeeping life organized. It may be best for you to buy a scanner and create a virtual filing cabinet instead.
2. Working on the Books Yourself
You will encounter a lot of small mistakes if you do not have financial training related to accounting. It may be best to hire a Bookkeeper to avoid making small and big mistakes in your books to ensure that all financial rules are followed and that important financial reports throughout the year are ready for you to use when evaluating your business. You will be able to spend time more on your business using the skills that you possess when you let a bookkeeping professional work on the books for you.
3. Inaccurate Accounting
If you’ve come across books that turned out to be useless when running an Income Statement or Balance Sheet, then that means there was inaccurate data such as double entries, missing transactions, paid receivables that are still open. You understand what’s next. Ask for help if you feel like you’re not going anywhere. In fact, it may be better to start again and record year after year of wrong information and hire someone to clean it up. Find a partner who can help you get everything right to give you peace of mind and a lesser problem to deal with in the future.
4. Holding on to Poor Books
Get rid of poor books and start over again to prevent harming your business even more. Overestimating the earnings of your business could mean you’re wasting money that you don’t even have. Keep track of the invoices that you send out because you may even be owed a great deal of money that you didn’t even know of. Keeping poor books is not a good idea when running a business.
5. Incorporating Business with Personal
It’s not a good idea to incorporate your business and personal cash unless you plan to freelance by yourself forever. It may not be a big deal at first, but once you start operating, you want to ensure that you have a business bank account and credits prepared into your accounting system. Avoid having to clean up a set of books mixed with personal expenditures because it’s going to be difficult for you. Focus on what you want your business to achieve such as for it to be profitable and expanding instead of mixing it up with your personal obligations.
6. Not Setting Aside Payroll Taxes
You’ll get into trouble with the Internal Revenue Service if you don’t set aside payroll taxes. Avoid a headache and expenses by staying on top of your payroll management even if it means you need to hire a Bookkeeper to look after this complicated job.
7. Failing to Update Your Books Regularly
Yes, it’s definitely time-consuming for business owners to update their books and is something they would normally avoid. But the thing is, not updating your books regularly would mean you’re not updating current numbers and you may make wrong decisions based on the old data.
Avoiding these top seven bad bookkeeping habits should be able to keep your business afloat as well as improve and grow your business in the long run.