The three things we can count on, as CPAs. As sure as the sun will rise, and as sure as Congress will never understand what it means to own a small business, we will see the same errors made by every start-up that attempts to do its own accounting. I will refer to QuickBooks Pro here because that’s what my clients use. But you can insert any accounting software name here.
We see these errors all the time and advise start-up entrepreneurs on how to remedy them…or sometimes do it ourselves.
Setting up a chart of accounts that would make Google flinch: For most small businesses, I would estimate that all accounting could be done through maybe 30 general ledger accounts. More than that, you start to have duplication and confusion, not unlike the Duggar family. I have seen the following accounts set up in QuickBooks…taxes, payroll taxes, property taxes, federal taxes, state taxes, estimated taxes, business taxes….in the same QB Pro file, for one client. You’re not Bubba from “Forrest Gump.” Consolidate, please.
Never reconciling the checking account: OK, this is dangerous. Checking the bank balance online each morning is NOT the way to run your business. Actually comparing that intimidating, three-page bank statement to your accounting records is a good thing, grasshopper. I met with a prospective client that ran a $3m company, and he wasn't aware that his in-house bookkeeper hadn't reconciled his company accounts in more than two years. I was seriously fearful of the mess awaiting me (for good reason, I later found). Make it a habit, like your morning coffee or reading the Twilight series.
Recording deposits from customers incorrectly: I once saw an accounts receivable balance in QuickBooks Pro for -$1,845,526. This company was nearly 10 years old and had never once recorded a customer revenue deposit correctly. And they had never balanced their checking account (see the previous paragraph). When it came time for the business to entertain buyers, they wondered why no one was knocking down their door. This was one of those problems that I just didn't think we could fix. It would take less time to press “delete” and start over again. Even my love for Single Malt couldn't get me through that housecleaning. Sheesh.
There really are people who have no business doing their own accounting. I’m not ashamed to say that. But if you insist on doing your own accounting, watch these three things so that I don’t make fun of you when I review your work. Because I will make fun of you.
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