As an experienced bookkeeper who works primarily with creatives, I've seen my fair share of bookkeeping mistakes.
While I understand that creatives like yourself would prefer to focus on their craft, keeping accurate financial records is crucial for maintaining a successful business. Here are some of the most common mistakes I've seen over the years, and more importantly, how you can avoid them!
1. Mixing personal and business expenses
One of the most common financial mistakes I see among creative professionals is failing to separate their personal and business finances. Treating business funds as your own makes it extremely difficult to keep track of business income and tax-deductible expenses, making preparing for taxes a nightmare. This practice also puts you at risk of losing your LLC’s or corporation’s liability protections, making you personally liable for business debts or lawsuits. Not good.
Always maintain separate bank accounts for business and personal finances. Pay yourself from the business at regular, planned intervals via an ACH transfer to your personal account, writing a physical check to yourself from the business, or via payroll, depending on your tax structure. Consistently document these personal distributions in your bookkeeping records for clarity.
2. Not keeping receipts
Another very common mistake creative business owners and freelancers make is not keeping track of receipts and invoices. The IRS can (and will) strip away every tax deduction that doesn’t have documented proof of the legitimacy of the business expense, leaving you with a big tax bill and fines/penalties to pay.
Bookkeeping software like QuickBooks Online, Xero, and Wave, can help you track your income and expenses, but it's also essential to keep receipts (or receipt images) and invoices in a safe place, such as a dedicated filing cabinet or cloud storage.
3. Not reconciling accounts
Reconciling is the practice of comparing actual bank statements to bookkeeping records to ensure they match up. It's easy to assume modern-day accounting technology is error-proof, but I assure you - it's not. By reconciling regularly, you can catch errors in your bookkeeping records and avoid costly mistakes down the road.
4. Forgetting cash transactions
In the modern day of digital wallets, cash payments are often forgotten. I always advise my bookkeeping clients to keep track of all cash transactions, even small ones. This can be done by keeping a “Cash on Hand” notebook or immediately recording all cash transactions in your accounting software.
5. Not planning for taxes
Last, but not least, failing to plan for taxes is a big mistake I see all too often among creative professionals. As a bookkeeper and business owner, I know how important it is to set aside a portion of income to pay for taxes. Doing so helps to avoid being caught off guard when tax season rolls around, and ensures your business isn’t put at risk when a giant tax bill shows up at your doorstep with no way to pay it.
Avoiding these 5 bookkeeping mistakes is essential for maintaining accurate financial records and running a successful creative business.
If you feel out of your element when it comes to money, get in touch with us so we can help you avoid these common bookkeeping mistakes and plan for a successful financial future. Book a free introductory call with us today.
