We all make mistakes; it’s a part of life and it’s certainly a part of being a business owner. If this opening line sounds familiar, it means you read our last blog on the top 5 B2B marketing mistakes to avoid (and if it doesn’t sound familiar, then go and read that article — it’s okay, we’ll wait.)
Marketing mistakes aren’t the only costly errors made by small business owners; mistakes are also frequent in their books. And bookkeeping errors can get costly, fast.
To help, we have compiled the top five bookkeeping and accounting mistakes small businesses tend to make. And here’s a hint before we even get started, every one of these errors are related to timeliness and documentation (or lack there of).
Overlooking reconciliations. Reconciling is the only way you can make sure all of the transactions on your bank and credit card statements are in your accounting software and vice versa. If you’re not doing this on a regular basis (and by this we mean at least monthly although more often is better), not only are you unaware of the fine financial details of your business but, if too much time passes, you’re also unlikely to catch errors.
Getting too far behind on your books. Whether you do your books yourself or you hire a bookkeeper to do them for you, it’s important to stay up-to-date. Having a shoebox full of receipts to input at tax time will not help you grow your business. Bookkeeping and accounting software is a powerful business tool but only if you’re using it properly to generate critical reports to help you understand your business levers and the important decisions you need to make. And you can’t run reports if your books aren’t up-to-date.
Forgetting to supervise your bookkeeper. It’s highly unlikely that your bookkeeper is committing malicious fraud but that doesn’t mean that everything is status quo either. It behooves an owner/manager to be vigilant about analyzing and understanding the numbers being presented and to insist on numbers being presented on a regular basis. Because a bookkeeper may be doing you a terrible disservice through sloppy work or sheer incompetence. Besides, how will you know whether your bookkeeper is up-to-date on your books if you’re not paying attention?
Not having proper documentation. A paper trail for every line of data in your accounting software is an absolute must. Without it, a small business CRA audit can go from a nuisance to a nightmare. Sent an e-transfer to a contractor? Keep a copy of the receipt. Had lunch with a client? Keep the original receipt (the one with the HST number on it, not the credit card one, although you can staple them together if you want). Better yet, scan all of your documentation and save them to a file so there’s no need to worry about the ink fading over the next seven years. (That is how long the CRA requires personal and business taxes be kept on file.)
Avoiding the CRA. We get it; receiving a letter from the Canada Revenue Agency strikes fear in the heart of many business owners. But putting that letter in a drawer and hoping it will go away will not solve the problem; it will only make it worse. Instead, call your accountant immediately.
Do you analyze month-over-month marketing metrics? They’re useful but you’ll get a better sense of your business by analyzing the year-over-year metrics. Find out more in our next blog post.