Quickbooks is the most popular app out there for business owners managing their books but it is not perfect! There are some parts of managing Quickbooks that you may only learn working with an accountant.
Below are the biggest mistakes I see when working with business owners and the thing is, most of these are easy fixes! Quickly learn how to manage your books to avoid these 5 mistakes.
1. Trust Quickbooks Too Much!
Say it with me – Quickbooks is not always right!
In fact, they are going to get it wrong…often.
At the end of the day, it is a robot making educated guesses as to what you bought and earned. This can speed things up but only by a little.
Instead, if you really want to save some time I recommend creating rules. It is similar to the suggestions Quickbooks provides but you are giving Quickbooks the cheatsheet.
For example, if you own a bakery and purchase frosting from Frosting Co., Quickbooks may try to classify this as “meals”. In this case, you can create a rule where whenever “Frosting Co” shows up as the vendor Quickbooks recommends “raw materials”.
You still need to approve the transaction but it can save you a few seconds looking for the specific account.
This is especially helpful with fixed costs!
2. The Same Item is Recorded Twice!
Quickbooks integrates with a LOT of different apps. Doing so can make your life so much easier too!
However, if you sync your apps wrong then you can find yourself doubling your income or expenses.
For example, let’s say you have your Paypal and bank account linked to Quickbooks. You receive a payment from a client via Paypal and then a few days later that payment is transferred to your bank account.
On the Quickbooks side, if you were to count the transaction in Paypal as “income” and the deposit that hit your bank as “income” you have now doubled your income with a single payment – NOT GOOD!
You need to look at all your linked accounts as a single picture and be sure to reconcile your bank statements with your account each month. It’s not just the final totals that need to match – deposits and expenses need to match too!
3. Poorly Managed Chart of Accounts!
Your financial statements are designed to give you a financial overview of your business. However, sometimes business owners treat them as customizable reports that show waaaayyyy too much detail.
Your balance statement and income statement should not include client-level information. It should also not include every single product or service you offer (within reason).
For example, say you are a mindset coach and your list of services includes:
- 1 on 1 Coaching
- Mastermind Subscription
- DIY Online Course
It would make sense to have a separate line item in your income statement for each of these service offerings. Then you would be able to see what services are generating the most revenue versus which ones may be struggling.
However, let’s say you held multiple mastermind groups simultaneously and had separate line items for each group. This would quickly create confusion and likely not add any valuable information to your income statement.
The tricky part here is it will change from one business to the next so you will need to use discretion. We do not want our financial statements to be so detailed they are information overload but we do want a detailed enough level of information that they can help us make business decisions.
4. Generating Accrual vs. Cash Reports
When you click on that “Reports” button you are going to be presented with a list of settings to adjust your report. One important setting you will want to understand is Accrual vs. Cash.
Cash is defined as recording income and expenses when they hit your bank account.
Accrual is defined as recording income and expenses as they are earned.
If you use the invoicing or billing features, for example, this will change when transactions show up on your financial statements.
Accrual accounting can be extremely helpful to business owners but it does take a lot to manage and for the majority of small business owners, it is not necessary.
General rule – make sure you are generating CASH reports. In some cases, an accrual report may be more accurate but it is always good to speak with your bookkeeper when considering these scenarios!
5. Mistaking Liabilities vs. Expenses or Assets vs. Income
Here’s the thing, you are going to need more than a single article to understand this concept. Students studying accounting and bookkeeping spend countless hours and classes learning when something should be a liability vs. expense vs asset vs income – it’s difficult!
I do NOT say this to discourage you. I want you to understand this is tricky stuff that is easy to mess up.
For example, if you take out a loan that loan will need to be recorded as a liability in your chart of accounts. Then whenever you make a payment, that will be an expense. However, you need to be sure to adjust your liability account where the full amount of the loan is sitting. Not to mention…you will also need to calculate the interest breakdown and record that separately!
It’s complex, which is why at the very least you should consider working with an accountant on a quarterly basis.
I LOVE Quickbooks but it has some quirks and bookkeeping is hard. Which is why it is so important to be aware of some of these challenges when handling your bookkeeping.
If you have taken all the online courses on bookkeeping but finding yourself continuing to have challenges, I offer 1-on-1 Quickbooks training courses which are designed to set you up for success with your bookkeeping. I will guide you through the process of getting your books organized and help you efficiently manage it on your own.
To learn more about my Quickbooks training, click the button below: