Common Bookkeeping Mistakes Small Businesses Make and How to Avoid Them

You're going through your books, and the numbers don't add up. Your cash flow feels tighter than it should, and tax season is already like a distant nightmare you're not ready to revisit.

This is the reality for so many small businesses as you reach that mid-year point of financial and tax planning. While, sure, there might be genuine business issues that lead to this stress, a lot of the time, it comes down to fixable accounting habits.

These are seven common bookkeeping mistakes that small business owners across New York, New Jersey, and Connecticut can avoid as you continue through the year.

7 Bookkeeping Mistakes That Could Be Costing Your Business

1. Mixing Business and Personal Finances

It's easy to have all your income flow into a single bank account or accidentally swipe your business credit card during a family lunch—but that’s one of the worst habits to keep.

Commingling business and personal accounts makes business deductions nearly impossible to defend. Plus, it's a fast way to trigger an IRS audit.

How to Avoid It: Keep separate business and personal accounts and credit cards, and never let those finances cross over into the wrong account.

2. Falling Behind on Recordkeeping

With all the moving parts of your small business, it's understandable that record-keeping could take a back seat to everyday operations.

However, you need strong recordkeeping to:

• Identify sources of income

• Prepare your financial statements

• Track the progress of your business and deductible expenses

• Prepare and support items reported on your tax returns 

How to Avoid It: Reserve a set time at least once a month to gather and maintain your financial records. Follow the IRS's advice of keeping those records for at least 3 years.

3. Skipping Monthly Bank Reconciliations

Unreconciled bank accounts hide errors, duplicate charges, and fraud. Letting months go by without comparing bank statements to expenses and income lets those errors compound until you’re spending hours wading through dozens of charges trying to find a single conflicting transaction.

How to Avoid It: At the end of each month, reconcile your bank accounts to ensure everything aligns.

4. Misclassifying Employees vs. Independent Contractors

Employees and independent contractors have different payroll requirements. Paying someone as a contractor when they legally qualify as a W-2 employee can trigger back taxes, interest, and penalties from federal and state agencies for both you and the employee. 

How to Avoid It: Double-check the employment status of everyone you hire, and ensure that you're withholding the proper taxes so no one is surprised come tax season.

5. Not Tracking (or Saving) Receipts

While you may not want to have a stack of receipts or invoices taking up space in your office, the IRS requires you to prove the expenses you claim. Simply showing a bank statement with the landed charge won't cut it.

How to Avoid It: Keep every document that names your business as the payee, the amount you paid, the date of payment or charge incurred, and a description of the items or service.

6. Using the Wrong Accounting Method

The accounting method you choose affects when your books recognize income and expenses. 

Most small businesses default to cash accounting, while accrual accounting is also an option—and sometimes a requirement based on income. If you’re using the wrong one, switching accounting methods isn’t as simple as you might think.

How To Avoid It: Review your business income and structure with a CPA or tax advocate who can ensure you're using the right accounting method and assist you in switching if you're not.

7. Doing It All Yourself

DIY bookkeeping software does a good enough job when you have simple expenses and less income. As you scale, it can’t keep up with operations, allowing for:

• Misclassified expenses

• Unflagged payroll tax issues

• Unidentified multi-state nexus problems

How to Avoid It: Meet with an experienced CPA every quarter to review your business financials, catch errors, and maximize deductions.

Work with a CPA Who Knows NY, NJ, and CT Small Businesses

Bookkeeping mistakes don't fix themselves, but they do get more expensive the longer they go uncorrected.

The team at AVM DeMars has spent over 35 years helping small business owners across New York, New Jersey, and Connecticut prepare tax documents, produce financial reports, and offer guidance to get your finances in order and keep them that way.

Get a partner you can trust. Contact us today to schedule a consultation.