Three Common Bookkeeping Mistakes That Cause Major Headaches

Bookkeeping mistakes come in all shapes and sizes, and while some may seem minor, they can have significant repercussions for your business. Here are three common mistakes that can cause serious issues, along with why they’re problematic and what you can do to avoid them.

Commingling Your Funds

Commingling funds means using business funds for personal expenses or vice versa. This isn’t just a minor mix-up - it can create a bookkeeping nightmare.

When you mix business and personal expenses, it makes tracking your business finances accurately nearly impossible. You’ll spend countless hours sifting through receipts and bank statements, trying to separate business expenses from personal ones. This not only wastes your time but also increases the risk of errors in your financial records.

Commingling funds can jeopardize the personal liability protection offered by structures like LLCs or corporations. If your business finances are not clearly separated from your personal finances, you could be held personally liable for business debts and legal issues. Imagine losing your home or personal savings because of a business issue - it’s a risk that’s easily avoidable with proper bookkeeping practices.

In addition to these issues, commingling funds can also raise red flags with the IRS. If you’re audited and your business and personal finances are entangled, it can lead to more intense scrutiny and potential penalties. Keeping your finances separate is crucial for maintaining the integrity and credibility of your business.

Contractors Without W-9s

Hiring contractors is a common practice for many businesses, but it’s essential to get signed W-9 forms from them before issuing any payments. Skipping this step can cause a cascade of problems down the line.

Without a W-9, you won’t have the necessary information to issue the required 1099 forms to your contractors in January. This can result in compliance issues with the IRS, which can lead to penalties for your business.

Furthermore, lacking W-9 forms means you might not be able to accurately report expenses on your own tax returns. This can lead to discrepancies in your financial records and potential issues during an audit. Keeping thorough and accurate records from the start makes year-end reporting smoother and helps ensure you remain compliant with tax laws.

Failing to collect W-9s can create confusion and mistrust with your contractors. Having all necessary paperwork completed upfront sets clear expectations and helps maintain a professional relationship, making future collaborations smoother and more efficient.

QuickBooks Self-Employed

Okay, this one might be a hot take, but I stand by it. At first glance, QuickBooks Self-Employed (QBSE) might seem like the perfect solution for new solopreneurs. However, it has several limitations that can hinder your business growth.

QBSE lacks customizable reporting capabilities, meaning you can’t tailor reports to fit your specific business needs. This can make it challenging to get a clear picture of your financial health and make informed decisions.

Another downside is that QBSE lacks integration capabilities with other software tools you might use, such as CRM systems or project management tools. This can limit your ability to streamline operations and automate processes, ultimately affecting your productivity and efficiency.

The most significant drawback (in my opinion) is that you can't easily upgrade your QBSE account to a more robust subscription within QuickBooks Online (QBO). Instead, you would need to start a new subscription from scratch and migrate your data, which can be a complex and error-prone process. This migration can lead to potential data loss or discrepancies, creating more headaches and additional work to ensure all financial information is correctly transferred and organized in the new system.

QBO offers the Simple Start subscription for only $10 more than QBSE and you’ll avoid all of these issues!

Why You Should Hire a Professional

Avoiding these common bookkeeping mistakes is crucial for the smooth operation and growth of your business. By hiring a professional bookkeeper, you can ensure your finances are managed accurately and efficiently, freeing up your time to focus on what you do best - running your business.

Don’t let these avoidable mistakes hold you back. Reach out today to see how I can help you keep your books in order and set your business up for success!