10 Common Mistakes Small Business Owners Make With Their Accounting and QuickBooks
Here are some mistakes that I see small business make with their accounting and QuickBooks. Could this be you?
1. QuickBooks® is not set up properly for their business
Many small business owners don’t have QuickBooks® set up properly for their business. In some cases they may even be using the wrong version of QuickBooks®. This causes small business owners to have to spend a lot of time getting information out of QuickBooks® or having to track information manually outside of QuickBooks®. The key here is to first understand the different versions of QuickBooks® available and then to understand how information is accumulated in QuickBooks® primarily by the use of projects, items, and the chart of accounts. After you have that understanding then you can set up QuickBooks specifically for your company and your needs. Once it is set up properly, you can use QuickBooks® reports, such as profitability reports, that show you how much money you made by customer, by project or job, and by inventory or service items.
2. Use QuickBooks® only as a bookkeeping tool and don’t review QuickBooks® reports to manage their business finances
Many small business owners use QuickBooks® only as a bookkeeping tool - to capture their daily transactions. Unfortunately, they don’t review financial reports such as the Profit & Loss, the Balance sheet, and key reports such as the accounts payable aging, accounts receivable aging, and several types of profitability reports. QuickBooks® also allows you to set up budgets and to track budget versus actual on a regular basis. In order to manage your business effectively you need to have timely and relevant financial information available to you and you need to review it on a timely basis. If you haven’t done so already, go to the Report Center in QuickBooks® and look at the reports available. You should at the very minimum be looking at the reports in “Company & Financial.”
3. Don’t maintain the bookkeeping up to date
I know that keeping your bookkeeping up to date can be a thorn on your side but it is a necessary function of running your business. Here are a few tips:
a. Set aside time on a weekly basis to update your books.
b. Use a checklist to ensure that you record all your transactions.
c. Be sure to have receipts for all of your transactions.
d. Set up a filing system that is appropriate for the size of your business and file away all your receipts and documents.
4. Don’t reconcile accounts
Many small business owners have messy balance sheets because they don’t reconcile their accounts. This includes reconciling bank accounts, credit card accounts, sales tax accounts, and other accounts on a monthly basis. A telltale sign of a messy balance sheet is usually when balances in credit card and sales tax accounts show a negative balance on the balance sheet. A monthly reconciliation process is key to ensuring that your financial data is accurate. QuickBooks® makes it easy to reconcile bank accounts, credit card accounts, sales tax accounts, and more. If your financial data is not accurate then how can you rely on it to make decisions for your business?
5. Use and older version of QuickBooks®
Many small business owners use an outdated version of QuickBooks®. Why is this important? Because QuickBooks® does not support any versions older than three years. Also, newer versions of QuickBooks allow for automatic downloading of bank and credit card transactions from the bank and credit card companies. Newer versions also have higher capabilities, for example QuickBooks 2011 version allows for batch invoicing – a great time saver for companies that bill multiple customers for recurring fixed amounts (such as monthly support charges). Upgrading to a new version of QuickBooks® is very simple and generally only takes minutes.
6. Improperly plan for future growth
Whether you do your own accounting and QuickBooks® or have hired someone to do it for you (an employee or bookkeeper) – do you have a solid plan for how your accounting function will grow as your company grows? Many small business owners fail to properly plan for this. First, consider whether you will need to hire someone else to do your accounting and QuickBooks® -- what should be their qualifications be? What should you expect from them? How will you monitor them? What areas will they be responsible for? What areas will you be responsible for? Second, consider computer and software needs. Will you have enough computers for your employees, do you need to purchase additional software licenses? What security restrictions will you place on your QuickBooks® so that your employees don’t have access to sensitive financial or payroll areas? Finally, how will you remove yourself from the day-to-day management of your company’s accounting and QuickBooks® and when will the right timing be for this? Make time to device a plan and budget for future growth.
7. Hire the wrong person to do their accounting and QuickBooks®
This is a very common mistake that small business owners make – they hire someone who is not qualified to take care of the accounting and QuickBooks®. There are two key areas here – compensation and qualifications. Many small business owners don’t want to pay for a qualified individual. As a result, they hire someone who is under qualified or inexperienced. As a result, the person they hired a) is unable to do the work correctly, b) can’t keep up with the work load, c) they are unhappy with their low paying job, and d) may find a reason to retaliate. Retaliation can take place in many forms – a bad attitude, absenteeism, tardiness, rudeness toward customers and employees, not getting any work done, quitting without giving notice, and sometimes even theft and embezzlement. I have also seen employees quit without giving notice right before payroll is due leaving you scrambling at the last minute.
The other issue to consider is whether the person you hire is qualified. You need to make sure that you clearly understand their past accounting and bookkeeping experience. Ask detailed questions and make sure that you get clear answers. Never ask “do you know QuickBooks®?” and be satisfied with “yes” as the answer. I have interviewed people in the past who put on their resume that they used QuickBooks® but upon further questioning I found out that they were only doing data entry. Ask specific open ended questions such as – how would you invoice a customer in QuickBooks®? How would you pay for a vendor bill in QuickBooks? How would you reconcile the bank account in QuickBooks®?
8. Don’t know how to monitor their accounting staff
Many small business owners worry because they don’t know how to monitor their accounting staff. They worry about whether the staff person is doing a good job, whether it really takes that long to get something done, whether the staff is invoicing customers for everything that needs to get billed, and they worry about whether vendor bills are getting paid on time. The keys to monitoring accounting staff are a) setting clear expectations for your staff, b) documenting procedures to be followed, and c) go over expectations and procedures with your staff. Expectations and procedures should cover things such as – what tasks are to be completed, when they are to be completed, and how they are to be completed. For example, expectations and procedures should include specific dates when certain financial reports will be available for you to review in QuickBooks®. If you want to review your accounts receivable aging on Fridays then you need to let your accounting staff know that all sales invoices and payments need to be entered by end of day on Thursdays. Another key is to establish good communication with your staff – they should be able to come to you with problems and inform you of when they are not able to meet their deadlines. Many times accounting staff get interrupted throughout the day or have to put out fires and they don’t get the time they need to take care of their daily duties. Keep the lines of communication open.
9. Don’t have a plan for when their accounting staff or bookkeeper leaves
What would happen if your bookkeeper or accounting staff suddenly left? Would you know what to do? How would you train their replacement? The key here is to set up an accounting process that is independent of the people carrying out the process. You need to set up a turnkey process. Most large corporations already have this in place. Take McDonald’s for example, they have a process that they use to train employees in a low paying high turnover industry. They don’t rely on the people they hire – they rely on the process. In order to set up a process for your accounting you need to document your accounting procedures and keep them up-to-date. Once you document your procedures then you can use them to train new staff and you or others can use them when your accounting staff is out sick or in the event that you or someone has to step in while you hire new or additional accounting staff.
10. Don’t back up their QuickBooks® file remotely
What would you do if your QuickBooks® file became corrupted or if there was a theft, fire, or a natural disaster and you lost your QuickBooks® data and your back ups? Many small business owners back up their QuickBooks® file to their hard drive or to a zip drive but they don’t use an online backup service. Mozi or Carbonite are are relatively inexpensive online backup. They cost around $60 per year. Isn’t your peace of mind worth $60 per year?