Good Financial Reads: The Business Owner’s Financial Operating System

The Most Costly Bookkeeping Mistakes Small Business Owners Make (And How to Fix Them)

By Michael Reynolds, CFP®, Elevation Financial LLC

You started your business to pursue your passion and build something meaningful. You didn't sign up to become an accountant.

Yet here you are, staring at a pile of receipts from three months ago, wondering if that $47 charge was for office supplies or that lunch meeting with a potential client. Sound familiar?

Poor bookkeeping is one of the most common ways small business owners sabotage their own success. The consequences go far beyond a messy spreadsheet. Bad books can cost you thousands in overpaid taxes, missed deductions, and penalties. They can also leave you flying blind when it comes to making critical business decisions.

Elevation Financial provides bookkeeping for many of our business owner clients, and we see some pretty common mistakes when we take over the books.

Let's walk through the most common bookkeeping mistakes that trip up small business owners, and more importantly, how to avoid them.

Neglecting to Reconcile Bank Accounts
This is perhaps the most fundamental mistake, and it's surprisingly common.

Bank reconciliation means comparing your bookkeeping records against your actual bank and credit card statements to make sure they match. When you skip this step, you're essentially trusting that every transaction was recorded correctly and nothing was missed.

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How Much Should a Business Owner Pay Themselves? Salary vs. Owner Distributions Explained

By Christopher Stroup, CFP®, MBA, EA, Silicon Beach Financial

Early stage entrepreneurs often default to a simple approach. They take money from the business whenever they need it. While that may work temporarily, it can quickly create problems.

Your compensation strategy affects several important areas:

1. Cash Flow Stability
Paying yourself a predictable income helps separate business finances from personal finances, which makes budgeting and tax planning easier.

If you want a deeper look at this topic, read: How to Separate Personal and Business Finances: Essential Tips for Entrepreneurs and Business Owners.

2. Taxes

Your salary versus distribution mix can determine how much you pay in:

• Income tax

• Payroll taxes

• Self-employment taxes

The structure of your company determines what flexibility you have.