Bookkeeping is the recording of financial transactions performed by a company over a period of time. It helps know the financial health of your business.
Since a business that is not solid fundamentally and financially is vulnerable to failure from all sides, failing to keep an eye on your books can be an unforgivable mistake to make.
I have spent years managing small business finances and have spoken with thousands of business owners throughout my decade-long career. And it has made me realize that there are countless businesses that make the same accounting errors as if it were some sort of a universal tendency.
So, I have come up with a list of bookkeeping mistakes that you must avoid when managing your company finances. Let’s dive in.
1. Not bookkeeping because your business is too small
If you own a company, you already know how important it is to be meticulous about the accounting side of your small business. It is one of the determining factors of your success.
A successful business means proper bookkeeping in Bangkok – ensuring all transactions are correctly recorded and accounted for.
But it is rather typical for entrepreneurs to put off accounting and bookkeeping tasks or assume that they can do it on their own. This leads to incomplete or inaccurate information, which in turn affects the overall health of the business.
The truth is, many small businesses generally forget about the fact that bookkeeping is a crucial task that shouldn’t be ignored if you want to run a successful company.
If you think your business is too small and you don’t need to worry about bookkeeping, think again. Because no matter the size of your business, you need to set a good financial foundation.
And bookkeeping may not be something that most business owners wish to spend time on. It is also not a fundamental qualification for any given small business owner to know how to do it. But it still provides an essential insight into how well the business performs financially.
More important than just being aware of your direct financial performance, bookkeeping is a tool that enables you to keep track of important financial data. Such data can be used as a measure of the future success of any business and can predict any possible future problems.
2. Mixing personal and business funds
Mixing funds can make your life crazy complicated and legally vulnerable.
That’s why it is important to get used to separating your business from your personal finances as early as possible because you never know when a situation will arise where you might end up needing to do it.
Besides, mixing business and personal funds is an easy way to get yourself in trouble with the PIT. Because while you enjoy tax deductions on business expenses, it is unlawful to claim it on mixed funds.
So, it essentially is not the wisest approach to growing your business.
Regardless of the size of your business, you should have a separate bank account for your business transactions. Your business bank account should be used only for business – not business and personal transactions.
In addition to that, mixing personal and business funds may cause you to spend out of your personal money even when the expenses are for your business and vice versa. As a result, you will be unable to hold anyone responsible for the loss of income if it occurs.
3. Not recording your income and expenses
It’s no secret that small business owners work hard and often go through a lot of personal change. This can take its toll on your accounting and filing practices. If you find yourself not recording your transactions, stop now.
Whether you manage your business’ finances in excel or have accounting software, the temptation of keeping track of your transactions can sometimes be avoided.
But the more you ignore this, the more it will cost you in the long run.
The most common reason for indicating your income and expenses are tax purposes. But saving your business from the government is not the only reason why you should record your income and expenses.
It is easy to get caught up in a vicious cycle. Because the more you don’t keep track of your expenses, the more they build-up, and the harder it is to do bookkeeping properly.
The solution?
Develop a review system to keep track of your income and expenses. Create a simple folder where you can keep receipts or transaction records. You can even use third-party systems like QuickBooks Online or Peak Accounting. All you have to do is enlist a bookkeeper’s help to set it up correctly.
4. Saving your bookkeeping until the end of the year
Do you have a headache thinking about documentation? Does that make you want to push your bookkeeping until just before the tax season?
You are not the only one!
We have been given so much information that we don’t know how to sort through it and focus on what is more important. There are just too many forms, because of which it is possible to mess up bookkeeping.
And this is exactly what causes many business owners to resent bookkeeping altogether.
But although tasks like bank reconciliation may be one of the most tedious parts of accounting, they allow you to review what you have done with your business’ finances.
Simply put, if you don’t have a system for tracking your small business income and expenses, then you are knowingly leaving money on the table.
You can’t compete when you don’t know the numbers. And you might end up missing on business deductions.
More importantly, you will continue making business decisions based on outdated financial records. And nobody likes doing that.
Daily bookkeeping helps you gain a firm grasp on the day-to-day financial activity of your business and tells you exactly where you are at any given time, which is important for long-term success.
Understandably, daily bookkeeping can be a daunting task. So, it is okay to settle for monthly bookkeeping, as well. But if you can’t find enough time for either, consider partnering up with a professional who can offer a monthly bookkeeping service.
5. Not reviewing your profit and loss
Losing sight of your profit and loss ratio is an easy bookkeeping mistake to make.
Watching the sales numbers climb is a great feeling. Your company might be doing well and your product might seem to be a hit with your customers. But there is an important number you might not watch as closely as your sales - your profit margin.
Profitability is how much money your business is making after subtracting all expenses.
But it is easy to not have the chance to take a step back to see how you are faring overall when the sales figures are flying in.
While sales is a very important metric, it does not always correlate to profit. You may be making money in month one, but not months two or three. And the only way to know that for sure is by reviewing your profit and loss.
Profit and loss statements are like the heartbeat of your business. By conducting regular reviews, you can identify where your business is trending and what needs to change to improve performance.
Working with a qualified bookkeeper in Thailand.
Did any of these bookkeeping mistakes hit close to home? Any of them sound like something you are currently dealing with?
If so, you are not alone. As I said earlier in the article, bookkeeping can be boring and intimidating. But it is undeniably important.
Whether you run your business as a sole proprietor, a partnership, or even a corporation, accounting is not just a vital part of the overall strategy process but is also an expense that doesn’t come cheap.
Bookkeeping is the backbone of your business. So, don’t put your company’s need for effective and efficient bookkeeping in the backseat.
Knowing that you are making mistakes with your bookkeeping is half the battle, but avoiding these mistakes can be difficult when you’re juggling all the other demands of running a small business.
And that’s why I suggest business owners hire accountants. In fact, most businesses stand to benefit from a professional quality bookkeeping service. It is a useful investment.
The best part? You don’t even have to accommodate them into your office.
Simply work with an experienced virtual bookkeeper.
Partnering with a bookkeeper for their expertise can help provide your business’ finances with another set of eyes. It can prepare you for more than just the tax season.
With the bookkeeping tasks taken off your plate, you can focus on scaling your business. You can enjoy more time developing products and services as well as listening to your customers.
A bookkeeper like Pimaccounting can give you that much-needed freedom and peace of mind.
So, are you ready to channel your entire time and energy toward growing your business? Book my time to get your strategic solution today.
