8 Common Bookkeeping Mistakes Made by Startups

Bookkeeping mistakes are among the top reasons many startups struggle with financial clarity and compliance. Bookkeeping is a crucial element of any business. Without accurate records, you won’t know if your business is profitable or not. Startups that neglect proper bookkeeping practices risk falling behind on taxes, losing investor trust, or making poor financial decisions.

Even though most startup owners understand the importance of bookkeeping, many still make costly errors. Here are the eight most common bookkeeping mistakes that startups tend to make—and how to avoid them.

1. Hiring an inexperienced bookkeeper or no one at all

Bookkeeping can be a tedious and time-consuming task, especially for those who are just starting. The first and biggest bookkeeping mistake that most startups make is not hiring a qualified bookkeeper. If you are trying to handle your business books yourself, it is advisable to stop right now! Hire a professional who has significant experience in bookkeeping.

For example, suppose you (or your inexperienced bookkeeper) forget to enter a client’s invoices or the sale amount into the system, that will have an immediate impact on your bottom line. A professional bookkeeper will help you avoid errors and save time &and effort in following industry rules and regulations.

2. Multiple Accounting Sheets

Another common bookkeeping mistake made by Startups is creating multiple accounting sheets and charts. The primary purpose of creating accounting ledgers is to provide an easy reference for financial management. In this way, they can track the previous day’s transactions and forecast the revenue.

A bookkeeper should use a single Microsoft Excel spreadsheet to consolidate accounting charts. These should be maintained consistently. Inability to enter or update data daily will create several problems for the business.

3. Failed Compliances

This is perhaps the gravest mistake Startups, or small businesses can make. Failing to adhere to compliance requirements, such as submitting incorrect or incomplete receipts and invoices to the tax department, will have a negative impact on tax returns. Using outdated accounting software can be very time-consuming as the information may not be updated automatically, which may lead to delays in receiving your tax refunds.

Examples of failed bookkeeping include:

✓ Incorrectly accounting for the payroll and payment

✓ Wrong bank deposits

✓ Inability to cancel the merchant account or credit card

✓ Incomplete or wrong reconciliation of accounts.

4. Delaying Accounting till the end of the deadline

If your bookkeeper has delayed the accounting process, you might fail to meet tax filing deadlines resulting in hefty fines and penalties. You may also miss the window for setting up a payment plan if you need to or be penalized by not being allowed to set up a payment plan in the future due to delayed filing and payment in the present.

Having an experienced and reliable bookkeeper and the necessary software will help you avoid such drastic consequences.

5. Paying personal expenses through a company account

Paying personal expenses from a company account is a serious bookkeeping mistake. Irrespective of the business structure, you have to complete an annual tax return for your business. Internal Revenue Service will know how much money the business has made while deducting allowable business expenses to work out your tax liability and penalties, if applicable.

If you are spending on personal items through a company account, these entries are subject to tax penalties. Using a company account for personal finances would be treated as disguised compensation, subjected to payroll taxes and potential interest. This may lead to reduced investment and hence, lack of growth.

6. Paying company expenses through the personal account

Startup owners should also avoid paying company expenses through personal accounts. It is essential to draw a line between private and company expenditure and make all business payments through business accounts.

Paying bills on time is essential for the success of any small business. However, paying company expenses from the personal account will not solve the core problem and may adversely impact personal finances.

7. Not collecting money on time

Delayed collection is detrimental to the financial health of any business, especially for startups. Delays in collection may result in severe cash flow problems or even bad debts.

Make sure you are not losing money because of faulty calculations and invoices. If accounting records are processed incorrectly, due dates are frequently miscalculated, and money is being collected late, it is time to hire a professional bookkeeper.

8. Not reviewing books regularly

Startup owners often fail to do a periodic review of the accounting records and books. Small businesses certainly do not have enough financial load to keep track every day or week. However, completely ignoring the financial books will cost you more than expected.

Many small businesses are successful because they put in a lot of time and effort into ensuring that their books are accurate and up-to-date at all times. If you have no idea how to achieve this, you can get in touch with Corient to get all the help you need to manage your books proactively.

Each of these common bookkeeping errors can cost small business owners a lot of money in the long run. Startups are already under a tremendous financial strain, and making a single mistake can cost them more than they bargained for. Therefore, it is essential to avoid these common bookkeeping mistakes to move towards success.

Conclusion: Avoiding Bookkeeping Mistakes is Key to Startup Success

Startups that prioritize accurate, timely bookkeeping are better equipped to grow, manage cash flow, and remain compliant. Avoiding these bookkeeping mistakes can save you money, time, and stress.

If you’re unsure where to start, E2E Accounting can help. Contact us through our website, and one of our experts will guide you in setting up efficient, error-free bookkeeping systems.