3 Common Bookkeeping Mistakes Regarding Your Small Business Expenses

Business expenses are necessary, and hopefully beneficial, to the operation of your small business. But many entrepreneurs and small business owners make common mistakes regarding them that cost money and open up the company (or the owner) to problems. Here are a few of these mistakes and how you can avoid them. 

1. Not Tracking Expenses

The first bookkeeping error involving expenses is simply not keeping track of what you're spending. Small expenses seem unimportant, but they add up over time. When you don't keep track of expenses, you don't know the balance in your bank accounts, how much profit you actually make, or where you can cut back.

One of the best ways to solve this problem is to use accounting software as early as possible. Schedule time each week to handle bookkeeping. And if you can't keep up, outsource bookkeeping to a professional. 

2. Improper Categorization

Categorizing expenses starts informally for most entrepreneurs as they keep written lists of income and expenses. It eventually becomes a formal chart of accounts in ledgers or software. However, you or your staff must decide on categories for each expense. This often results in inconsistent categorization, wrong categories, and a constantly-changing category system. 

Work with a bookkeeper to create useful expense categories based on your needs and industry. Make more detailed notes about purchases so that staff can correctly identify their purpose and category. And as time passes, go back and check on prior purchases to verify categories already used ā€” thus increasing consistency. Reevaluate your categories at least once a year, both adding and subtracting categories based on usage. 

3. Not Using Reimbursements

One of the biggest errors regarding expenses made by small business owners is mingling personal and business expenses. These must be kept separate to protect you and the company from excess liability. Mixing what you pay to operate your business and what goes on in your personal life also misstates how much it costs to run the business. And paying business expenses personally overstates your profit. 

Set up a process for reimbursing personal payments for business-related expenses. Include yourself, other owners, and employees. Track expenses that should be reimbursed so they get done. And be diligent about having owners or employees reimburse the company if any personal expenses end up paid with business expenses.

Where to Learn More

How you keep track of, pay for, and categorize expenses is an important step toward making a profit and staying out of trouble. Start by learning more about these common problems and how you can prevent them in your own bookkeeping. Meet with an accountant who offers bookkeeping services to companies in your area today. Your business will thank you for this early investment in good accounting.