Being the CEO of your business means making strategic decisions day in and day out. You’re responsible for your own success. So, if that means cutting services that are not profitable or taking on more expenses in order to grow, the decision is on you!
That doesn’t mean that you have to go it alone – absolutely not! You should be well supported in your decision-making. One of the biggest areas of support is your bookkeeping. I am a broken record on this subject – you have to know your numbers!
Knowing your numbers means you understand clearly where your revenue is generated, what expenses are necessary to operate your business, and how much profit you’re clearing every single month.
But, what happens when the numbers are wrong?
Well, I’ve seen a few bookkeeping mistakes with my clients that, once corrected, totally changed their mind about the next steps to take in their business. I’m going to share the top 3 bookkeeping mistakes I see that can really skew your bottom line.
Including “Owner Transactions” on the Profit & Loss Statement for LLCs and sole proprietorships
Contributing money to your business cash accounts or personally paying a bill on behalf of your business is a valid business transaction and should be reflected as an Owner Transaction. I’ve seen business owners recognize their investment into their own company as Revenue. HUGE NO! This is simply a Balance Sheet transaction. Your business received cash, and you received equity (or ownership) in exchange.
I’ve also seen owner compensation as an expense on the Profit & Loss Statement for LLCs (not taxed as an S corp) and sole proprietorships. Owner compensation for these types of entities is a Balance Sheet transaction. You exchanged equity (or ownership) for cash from the business.
Commingling is synonymous with not knowing your numbers. When there’s no way to designate business vs. personal transactions, it’s all a guessing game. Just throw the whole bank account away! I’m joking. You can still figure it out. I do it all the time with my clients in the System Setup. If you decide to go it alone, know that the work you’ll put in from untangling and sifting through all of those transactions will ensure that you never commingle again.
Failing to Reconcile Your Bank (and Credit Card) Account
All good systems have checks and balances. Consider reconciling your bank (and credit card) accounts the test to determine if you’ve included everything into your books that your bank has included. Also, check to ensure that any outstanding transactions are, indeed, valid and pending.
These are just a few of the mistakes I regularly see. I hope they help support you on your mission for better books!
Being both the CEO and CFO in your business can be overwhelming. If you are looking for support in the CFO area, click the envelope in the top right corner of my website to send me an email! I also hang out quite a bit on Instagram, so slide on in my DMs if you’re over there, too.