The Top 5 Bookkeeping Mistakes Small Businesses Make
By Aaron Buster | July 9, 2025
Accurate bookkeeping is the bedrock of a healthy business, yet it's an area where many passionate entrepreneurs stumble. These common mistakes can lead to cash flow problems, missed opportunities, and major headaches at tax time. Here are the top five pitfalls to watch out for and how you can avoid them.
1. Commingling Business and Personal Funds
This is the cardinal sin of business finance. Using your personal checking account for business expenses or paying for groceries with your business debit card creates a nightmare for tracking your true business performance. It makes it nearly impossible to see if your company is actually profitable and can lead to serious problems with the IRS.
The Fix: Open a dedicated business bank account and get a business credit card from day one. Run 100% of your business income and expenses through these accounts. No exceptions.
2. Not Reconciling Accounts Regularly
Reconciliation is the process of matching the transactions in your accounting software to your bank and credit card statements. Skipping this step means you never truly know if your books are accurate. It can hide bank errors, fraudulent charges, or simple data entry mistakes that can compound over time.
The Fix: Reconcile all your accounts every single month. This 30-minute task can save you hours of cleanup work and gives you confidence that your financial reports are correct.
3. Poor Record-Keeping
Are you saving your receipts? Can you explain what every single business expense was for? In the event of an audit, the burden of proof is on you. A credit card statement that just says "Amazon - $500" isn't enough. You need the actual receipt or invoice to prove it was a legitimate business expense.
The Fix: Use a system to capture and store digital copies of all receipts and invoices. Apps like Dext or even the QuickBooks mobile app make this easy. Snap a picture of the receipt, attach it to the transaction in your software, and you're covered.
4. Misclassifying Employees and Contractors
The distinction between an employee (W-2) and an independent contractor (1099) is a major focus for the IRS. Misclassifying an employee as a contractor to avoid paying payroll taxes can result in severe penalties, back taxes, and interest. The rules are complex and based on behavioral control, financial control, and the relationship between the parties.
The Fix: If you are unsure, always consult with a professional. It's far cheaper to get expert advice upfront than to face an IRS penalty down the road. We can help you determine the correct classification for your team members.
5. Doing It All Yourself (When You Shouldn't)
As a business owner, your time is your most valuable asset. While it's tempting to save money by doing your own bookkeeping, you have to ask: what is the opportunity cost? The hours you spend wrestling with spreadsheets could be spent on sales, marketing, product development, or serving your customers—the activities that actually grow your business.
The Fix: Recognize when it's time to hand off your books to a professional. A good bookkeeper doesn't just record transactions; they provide the financial clarity you need to build a more profitable and sustainable business. Schedule a call with us to see how we can help.