As a small business owner, you wear many hats—from chief strategist to marketing guru. But when it comes to bookkeeping, are you also playing the role of a meticulous accountant?
Many small businesses find that managing their finances is one of the most stressful parts of their day-to-day operations. In fact, a Xero survey of U.S. small businesses found that while 55% of respondents rated their financial literacy as “high,” as many as 50% also admitted that they face fiscal challenges as a result of gaps in their financial knowledge.
Common small business bookkeeping mistakes
- Mixing your personal and business expenses
- Skipping bank reconciliations
- Incorrectly categorizing your expenses
- Tracking only large purchases
- Waiting to update your books
Getting the basics of bookkeeping right will go a long way in keeping your business on a path to success. Here are five of the most common bookkeeping mistakes small business owners make and how you can fix them.
1. Mixing business and personal expenses
While it may seem harmless to use your business debit card for personal groceries or pay for a business lunch with a personal credit card, these blurred lines can create a messy financial picture. Not only does it make it difficult to get an accurate view of your business’s profitability, but it can also raise red flags with tax authorities.
The fix: The solution is simple and non-negotiable: separate your finances. Open a dedicated business checking account and use a separate business credit card for all company-related expenses. This creates a clear audit trail and makes your life much easier come tax season.
2. Skipping bank reconciliations
Think of bank reconciliation as a regular health check for your business’s finances. It’s the process of comparing your internal financial records with your bank statements to ensure everything matches up. Without regular reconciliation, it’s easy to miss a duplicated entry, a missing payment, or even fraudulent activity. It may seem like a tedious task but, if skipped, it can lead to inaccurate financial reports and cash flow problems.
The fix: Modern accounting software makes reconciliation almost effortless. Tools like Xero allow you to connect your business checking and credit card accounts directly to your books. For example, when you use Xero with Bluevine, your transactions automatically flow into Xero, making reconciliation a breeze and giving you a real-time view of your cash flow. This automation can cut down time spent on manual work and helps you catch errors early.
3. Miscategorizing transactions
Misclassifying expenses can distort your financial reports and lead to missed tax deductions. For example, you might accidentally categorize a software subscription as “office supplies” or a business meal as “entertainment.” While this might seem like a small detail, these errors compound over time, making it nearly impossible to understand where your money is actually going.
The fix: Set up a clear and consistent chart of accounts within your accounting software. Make a habit of reviewing and correctly categorizing transactions as they come in. If a category is unclear, don’t guess. Take the time to find the correct classification to ensure your financial reports are reliable.
4. Not tracking small purchases
Those little purchases for office supplies, tolls, or a cup of coffee for a client can quickly add up. Many small business owners fail to record these minor expenses, thinking they aren’t significant. However, neglecting to track them can lead to discrepancies in your financial statements and, more importantly, cause you to miss out on valuable tax deductions.
The fix: Implement a system to capture every receipt and expense, no matter how small. Using cloud-based software with a mobile app can make it easier to track expenses on the go. For example, Xero’s mobile app makes it easy to snap photos of receipts to store and link to the transaction, claim mileage, and reimburse employees.
5. Procrastinating on your books
Putting off bookkeeping until the end of the month—or, even worse, the end of the year—is a recipe for disaster. This procrastination creates a daunting backlog of transactions and a stressful scramble to get things ready for tax season. The longer you wait, the higher the chance of making errors or losing important receipts.
The fix: Consistent, timely bookkeeping is the answer. Set aside dedicated time each week to update your records. Solutions that automate accounting workflows, like the integration between Bluevine and Xero, can make this process more streamlined and less time-consuming.
By avoiding these common mistakes and using smart, automated tools, you can take control of your bookkeeping, ensure the financial health of your business, and get back to doing what you do best—running your business.
See how Bluevine Premier and Xero can work together to elevate your business.
Bluevine Business Checking customers with the Standard plan can get Xero free for 3 months, and Plus or Premier customers can get Xero free for 6 months. Terms and conditions apply.
Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and financial institutions provides a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.
