5 Bad Bookkeeping Habits and How to Fix Them
It’s easy to fall into some bad habits when it comes to your bookkeeping, but most of these problems can be corrected. Let’s talk about 5 of the most common bad habits we see everyday, how these habits can cause problems, and how to fix them!
1) Bad Habit – Not claiming all your expenses
Why this is bad: People often forget to claim cash transactions, owner funded expenses, reimbursements for mileage, customer gifts, depreciation and amortization. These are deductions that could often really help the business owner tax-wise!
How to fix it: Write notes on all your receipts and keep them in organized or at least all in one box!
2) Bad Habit – Making your bookkeeping too time consuming
Why this is bad: People put off doing the work on a regular basis which means more work all at once (i.e spending hours or weeks catching up twice a year), people use difficult or confusing ways to track transactions like spreadsheets or checkbooks
How to fix it: Use an accounting software that makes your life easier! (QBO or Wave) Also make a recurring task on your calendar that notifies you and force yourself to spend the scheduled time on your books! (30 min a week)
3) Bad Habit – Using only the bank account balance for decision making
Why this is bad: The bank balance is less than one fourth of your financial picture so relying on this number will often get business owners into trouble!
How to fix it: There are four main parts of the financial picture; revenues, expenses, assets, and liabilities/equity. In order to see all of these you need to look at a Profit and Loss and a Balance Sheet. Don’t forget your other financial components when making decisions!
4) Bad Habit – Not looking at trends month by month
Why this is bad: People make the mistake of looking at a month in a vacuum, meaning if they lose money one month, they get nervous about the future.
How to fix it: When looking at your financials you should consider the bigger picture. Run reports in your financial software that compare months to other months or years to other years. Don’t forget about busy seasons and slow seasons.
5) Bad Habit – Not knowing your cash flow
Why this is bad: In order to plan for the future you have to know what’s coming and what’s going cash-wise. You don’t want to be stuck owing a vendor and not being able to pay them because you don’t have the money in the bank and you can’t collect from your customers.
How to fix it: Have a budget. Keeping up with a monthly budget will help you predict your cash flow before it happens. You will always have the reserves on hand to pay bills.