Bookkeeping Pitfalls to Avoid when Starting a Business this Year
The ability to work for oneself is often cited as one of the top reasons people go into business for themselves, as well as desire for greater scheduling flexibility, longing to pursue a passion, and an aspiration to build something of one’s own. Thousands of new businesses launch every year, and in 2022, over 5 million new business applications filed.
No matter what type of business the aspiring entrepreneur selects, responsible bookkeeping must be a top priority. To thrive financially, a new business needs meticulous organization and management of funds so that cash flow does not run out abruptly before the business has really gotten off the ground. Having a system in place from the beginning—and a schedule of time that is blocked out just for financial management duties—can help get a starting entrepreneur acclimated to good bookkeeping habits early so that a streamlined system is already in place when revenue increases and you really don’t have extra time to spare.
Having a system in place from the beginning saves time and reduces stress in the long run. Some common pitfalls to avoid when establishing a reliable bookkeeping system for a new business:
Account mixing
Solopreneurs and people just starting out typically have a small client base in the beginning and may not feel the need to open a designated business account. While the business is very new, it may not generate much revenue or the money may be coming in sporadically. But as sales increase and the customer base grows, the flow of cash in and out of the business will get more complicated and harder to keep track of if all the business money is blended with personal funds. Many small business owners find that managing a separate account for receiving and issuing business payments streamlines the accounting, simplifies tax preparation, and saves a lot of time and stress.
Expense tracking
Starting a new business means spending money upfront and along the way. Whether it is for inventory, equipment, leased space, vehicles, advertising, business supplies, technology investments to run your business, or all of the above, starting a successful new business requires expenditures. Anything you put on credit or loan will need to be repaid later and may also be eligible for a tax-deduction, so having these expenses clearly tracked and organized will make bookkeeping and tax preparation much simpler. Keeping receipts someplace secure or uploading copies of them into a cloud-based document storage will keep your business expense records organized and retrievable on demand.
Reconciling
Getting all your records in order so that balances, withdrawals, cleared payments, and income totals match bank statements (and other financial records) can be a tedious, time-consuming task. In fact, balancing the books is often stated by small business owners to be the biggest drain on their time. But keeping your accounts organized and in sync is vital to long-term financial success. Whether you reconcile your accounts on a weekly or monthly basis depends on the industry you are in, your cash flow needs, and your own personal style—but either way, account reconciliation needs to be done regularly and consistently. The more often you do it, the less time it takes and the more quickly you’ll spot an account discrepancy so that you can fix it before money is wasted.
Doing it all yourself
If you started your own solo business, you are likely a do-it-yourself personality to begin with. But the savvy business owner does not tackle everything all alone and all at once. Good managers know when something falls outside their area of expertise or when a business task simply takes too much time to be worthwhile and therefore needs to be delegated or outsourced. Bookkeeping is not seen by many as fun work, but it is vital to a successful business and needs to be done promptly and accurately. If bookkeeping is one of those things that drains your time and energy and does not optimize your skills, some help from a bookkeeper or an online service could be all you need to get organized and streamlined.
Online accounting services are affordable, available to business of all sizes, and easy to learn and adopt. Many programs integrate with payroll and check printing services, when needed, and can even be outsourced to a virtual bookkeeper if you decide to be completely hands-off. Checkeeper allows you to customize and print professional business checks on demand. Since it integrates with other programs, account reconciling and check registry recording are automated so that you don’t have to spend extra time on routine bookkeeping tasks or data entry. Online accounting and bookkeeping programs are a budget-friendly way to get a good financial management system started that can then grow with your business as your bookkeeping and payroll needs evolve.