7 of the most common bookkeeping mistakes

You’re motivated, savvy, on the move and incredibly time starved. Between growing your client base and seeking new investors, it’s common for day-to-day tasks to fall to the wayside. Just don’t let bookkeeping be one of them. Small bookkeeping errors add up to a major landslide. A few missed financial transactions here and there can throw off entire financial reports, or even lead to tax implications. Here are seven common bookkeeping mistakes you can avoid with the right bookkeeping help.

7 of the most common bookkeeping mistakes and how to avoid them

Businesses of all sizes experience bookkeeping errors. From undocumented expenses to late tax lodgments, accounting mistakes come in all shapes and sizes. You could face not only unexpected losses, but government penalties if you fall into one of these seven avoidable traps.

1. Falling behind in bookkeeping

One of the most common bookkeeping mistakes is simply falling behind. Even a month of missed reports stops you from accurately understanding your cash flow and current debts. Keeping a daily general ledger the right way means staying on top of every single transaction that comes in and out of your accounts.

2. Using accounting software incorrectly

Popular accounting software programs can do a lot of heavy lifting. But they are still subject to human error, so you can’t skip the tutorial. Do an annual check-in with your accounting software and ask yourself: Am I using the most up-to-date version of this software? Can this software handle the scale of my bookkeeping needs? Is this software updated with the latest tax rates?

3. Incorrectly paying employees

If you treat someone as a casual when there is in fact a firm advance commitment to continuing and indefinite work, the mistake could cost you thousands. You may have to back-pay entitlements such as paid leave, and face penalties under workplace law. In Australia, the casual definition that applies from 26 August 2024 looks at the real substance of the working relationship, not just the employment contract. What might seem like a small formality is in fact a major decision. Familiarise yourself with employee classification in Australia and New Zealand to avoid this costly mistake.

4. Inaccurately reporting payroll tax and GST

A major part of keeping accurate business finances is paying the right amount of tax. In Australia, payroll tax is set by each state and territory, with its own threshold and rate, on top of PAYG withholding, superannuation and Single Touch Payroll reporting, so you may need some help setting up your payroll system the right way. It is always better to triple check than risk a penalty later.

You must also make sure your point-of-sale systems are set up with the right GST rate (10% in most cases in Australia and 15% for most goods and services in New Zealand). Rest assured, if you don’t pay enough in taxes now, you will end up paying for it later.

5. Mixing business and personal

The best financial practice for any business, even a small or medium-size organisation, is to separate personal and business transactions. When you’re trying to calculate tax deductions and reconcile your end-of-year reports later on, blended finances are a headache. You will have less to untangle later if you use a designated business account now.

6. Tossing your records too early

Did you know the government requires your business to keep certain financial records for a set period of time? It turns out you can’t just send everything to the shredder when tax time is over for the year. In Australia, the ATO requires most business records to be kept for five years from when they were prepared or obtained, or the transaction was completed, whichever is later, and the Fair Work Ombudsman requires employee time and wages records to be kept for seven years. In New Zealand, Inland Revenue requires records of sales and purchases to be kept for seven years. This includes everything from invoices and receipts to wage records and vehicle logbooks.

7. Hiring an inexperienced bookkeeper

Many of the above errors trace back to one common misstep: hiring a bookkeeper who is not able to keep up with your evolving bookkeeping needs. Someone with more experience can manage financial reports, prepare an accurate balance sheet, and stay on top of tax requirements. If you keep running into inaccuracies, it may be time to enlist a more robust bookkeeping team to round out your back-office and keep things in line.

If you’re a growing business in need of additional help, outsourcing your bookkeeping service may be the answer. Visory runs bookkeeping, payroll, and accounts payable and receivable for growing businesses, with a dedicated team and our AI, Delphi, overseen by that team. Visory Insights and a Business Performance Partner then turn the numbers into decisions. Book a discovery call to see how that would work for your finance function.