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Top 5 Accounting Mistakes Small Businesses Make (and How to Avoid Them)

Top 5 Accounting Mistakes Small Businesses Make (and How to Avoid Them)

Accounting probably isn’t your favorite part of running a business—but ignoring it can seriously hurt your bottom line. Small mistakes can snowball into cash flow issues, tax trouble, or missed opportunities for growth. Here are five of the most common accounting pitfalls small businesses fall into—and how to avoid them.

 

1. Mixing Business and Personal Finances

The Mistake:
Using the same bank account or credit card for both personal and business expenses.

Why It’s a Problem:
It makes it hard to track your business’s true financial health, complicates tax filing, and can raise red flags in an audit.

How to Avoid It:
Open separate bank accounts and credit cards for your business. Always pay yourself through a draw or payroll rather than swiping the business card for groceries.

2. Falling Behind on Recordkeeping

The Mistake:
Waiting until the end of the month—or even the year—to update your books.

Why It’s a Problem:
It increases the chances of errors, missed invoices, and forgotten expenses. It also leaves you flying blind when it comes to cash flow.

How to Avoid It:
Set aside time weekly (even just 30 minutes) to update your books or consider hiring us, Freedom Accounting Services, to enter your transactions for you!

3. Not Saving Receipts or Documentation

The Mistake:
Tossing receipts or failing to track documentation for purchases and deductions.

Why It’s a Problem:
You could lose out on tax deductions or get into trouble with the IRS if you can’t back up your expenses.

How to Avoid It:
Use a digital tool or app (like QuickBooks) to snap pictures of receipts and store them securely. Make it a habit right after each purchase.

4. DIY Bookkeeping Without Understanding It

The Mistake:
Trying to manage the books without knowing the basics of accounting or using the software incorrectly.

Why It’s a Problem:
Incorrect categorization, missed transactions, and reporting errors can lead to bad business decisions or tax penalties.

How to Avoid It:
If you’re doing it yourself, invest time in learning the fundamentals or take a short course. Or better yet—hire a professional accountant (like Freedom Accounting Services!) to help you get set up properly.

5. Ignoring Financial Reports

The Mistake:
Only looking at the bank balance to assess business performance.

Why It’s a Problem:
You’re missing out on valuable insights that can help you grow your business or spot issues before they escalate.

How to Avoid It:
Review your profit and loss statement, balance sheet, and cash flow report regularly. These reports tell the full story of your business’s health—not just your bank balance.

Final Thoughts

Accounting might not be glamorous, but it’s one of the most powerful tools you have to run a successful business. Avoid these common mistakes, and you’ll gain more control, confidence, and clarity over your finances. Need help with anything? No problem! We at Freedom Accounting are ready to service your accounting needs and help your business run smoothly!

Ready to get started?  Give us a call or send us an email today!

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