7 Common Bookkeeping Mistakes in Small Business
Bookkeeping errors can significantly impact a small business’s financial health. This article highlights common pitfalls and provides practical solutions, drawing on insights from experienced accountants and business advisors. By understanding these frequent mistakes, business owners can improve their financial management and set a stronger foundation for growth.
- Set Up a Proper Accounting System Early
- Monitor Daily Cash Flow for Growth
- Consistently Update Books Weekly
- Document Expenses Immediately with Photos
- Record Client Deposits as Liabilities First
- Plan for Seasonal Cash Flow Fluctuations
- Reconcile Bank Statements Regularly
Set Up a Proper Accounting System Early
A lot of small business owners start out using a spreadsheet or a free software tool, thinking they’ll “fix it later.” The problem is, by the time “later” comes, they’ve got months of miscategorized transactions, no idea what’s deductible, and a mess that takes hours (and a lot of money) to clean up.
A better route is to set up a real chart of accounts tailored to your business. If you’re a law firm, for example, your trust account needs to be tracked separately and precisely. It’s not optional. Whether you hire a bookkeeper or get advice on setup, getting it right early will save you from major headaches later.
Paul Carlson
CPA & Managing Partner, Law Firm Velocity
Monitor Daily Cash Flow for Growth
At Franchise KI, the biggest bookkeeping mistake I see franchise owners make is not tracking their daily cash flow in real-time, especially during rapid growth phases. When we were scaling Dirty Dough Cookies, one location almost ran into serious trouble because they were only checking their books monthly, missing some recurring subscription charges that were draining their account. I strongly suggest using a daily cash flow tracking system and setting aside 30 minutes each morning to review transactions – this simple habit has helped our franchisees stay on top of their finances and spot issues before they become problems.
Bennett Maxwell
CEO, Franchise KI
Consistently Update Books Weekly
A common bookkeeping mistake I see small businesses making is simply putting it off. It’s easy to let it slide when things get busy, but that’s when errors pile up or details get forgotten. I make sure to set aside just a few minutes every week to enter my expenses–keeping it quick and consistent helps me stay on top of things and avoid bigger headaches down the road.
Veronica Cockerham
Owner/Founder, Apple Blossom Gift Baskets
Document Expenses Immediately with Photos
One mistake I see often–especially among newer small business owners–is relying too heavily on memory instead of proper documentation.
People assume they’ll remember what a charge was for, or they’ll figure it out later when categorizing expenses. The problem is, “later” often turns into weeks or months; and by then, those expenses become nearly impossible to decode. This leads to messy records and miscategorized expenses.
A simple but effective fix we suggest is to snap a photo of every receipt and attach it to the corresponding transaction in your bookkeeping software, IMMEDIATELY. Most platforms like QuickBooks or Wave make this really easy now. It’s one of those small habits that adds almost no time in the moment but saves hours later.
So, every time you make a business purchase, snap the receipt right then. When you stop relying on your brain to store all those tiny financial details and start relying on a system, things start to feel a lot more manageable–you gain clarity without the overwhelm.
Matt Bowman
Founder, Thrive Local
Record Client Deposits as Liabilities First
One mistake I often see with small businesses–especially service-based ones–is recording client deposits as revenue right away, even when the work hasn’t started yet. It might make your income look great for the month, but it creates a false picture of your financial health and throws off everything from budgeting to tax planning.
What I’ve found helpful is setting up a “Customer Deposits” liability account in the books. When a client pays upfront, I log it there first. Only once the work is delivered or the project milestones are met do I move it into the revenue account. This way, the income reflects what’s actually been earned, not just what’s sitting in the bank. It’s a simple shift that makes your financial reports far more accurate–and makes tax season a whole lot easier.
Jeffrey Zhou
CEO & Founder, Fig Loans
Plan for Seasonal Cash Flow Fluctuations
Many small businesses overlook the nuances of cash flow throughout different seasons, especially when their industry has clear busy and slow periods. Insufficient planning for these fluctuations can lead to cash crunches during lean times. Instead of just focusing on revenue, it’s crucial to analyze your cash flow trends over at least a couple of years to spot patterns. During high-income months, put aside a portion of your profits into a separate reserve account. This isn’t just about covering direct expenses; it’s about maintaining financial stability so you can handle unforeseen costs or seize opportunities when your typical sales are down. Another smart move is to renegotiate payment terms with suppliers to extend timelines during slower months, easing the immediate burden on your cash reserves.
Paul Koenigsberg
Personal Injury Lawyer, Koenigsberg & Associates
Reconcile Bank Statements Regularly
Not reconciling bank statements can lead to missed transactions. Many small businesses are unaware of certain charges or fees. Using a tool like Quicken is an easy way to avoid this issue. With Quicken, you can integrate all your accounts and quickly review all transactions.
Emily Sander
Founder & CEO, Next Level Coaching, LLC