1. Mixing Personal and Business Finance
The Mistake: This is the number one mistake. Using a single bank account for both personal and business expenses creates a confusing, impenetrable mess. It turns bookkeeping into a nightmare, makes a CRA audit terrifying, and makes it impossible to know your true business profit.
The Fix: The fix is simple but non-negotiable: open dedicated bank and credit card accounts for your business and use them exclusively for business-related activity. Also, stop paying personal bills with the business credit card and vice versa.
The Remaining 9 Mistakes
Here is the rest of the list of common mistakes you should avoid, as outlined in the blog:
2. Misclassifying Expenses
- The Mistake: Putting expenses into the wrong categories (e.g., classifying a business lunch as office supplies).
- The Fix: Take the time to correctly categorize expenses as they happen or review them regularly.
3. Skipping Bank Reconciliations
- The Mistake: Failing to match your bank statement transactions with your bookkeeping records.
- The Fix: Reconcile your bank and credit card accounts monthly. This is crucial for catching errors and fraud.
4. Forgetting to Track Receipts and Docs
- The Mistake: Losing or neglecting to file important invoices, receipts, and documentation for expenses.
- The Fix: Use a digital tool (like a bookkeeping app) to photograph and store all receipts immediately.
5. Falling Behind on Entries
- The Mistake: Letting weeks or months go by without recording transactions.
- The Fix: Schedule a specific time each week to perform your bookkeeping tasks, or outsource the job to an accounting firm.
6. Ignoring Financial Reports
- The Mistake: Only looking at your bank balance and avoiding your Profit & Loss (P&L) or Balance Sheet.
- The Fix: Review your core financial reports monthly. They are the health report of your business.
7. DIY Without Oversight
- The Mistake: Trying to do all your accounting yourself without having a CPA or expert review your work.
- The Fix: While you can do the daily entries, hire a CPA for a quarterly or annual review to ensure accuracy and compliance.
8. Missing Tax Deadlines
- The Mistake: Procrastinating on tax filings and payments, leading to penalties and interest.
- The Fix: Maintain an up-to-date financial calendar and work with an accountant who can help you plan for and meet all deadlines.
9. Overreliance on Software
- The Mistake: Assuming that using QuickBooks or Xero means you don’t need any accounting knowledge.
- The Fix: Software is a tool, not an accountant. Understand the basics of debit and credit, or have an expert set up and periodically review the software to prevent major errors.
10. Waiting Too Long to Get Help
- The Mistake: Trying to fix complex, accumulated errors yourself once the mess is too big.
- The Fix: Act early. If you feel overwhelmed, contact an accounting professional immediately before a small problem becomes an expensive crisis.