7 common accounting mistakes small businesses make

Running a small business means wearing many hats, and accounting is often the one that provides some of the biggest challenges to entrepreneurs and business owners.  

Unfortunately, when mistakes creep into your books, they can lead to cash flow issues and tax problems. The good news is that most accounting errors are common and preventable. By understanding where things often go wrong, you can tighten up your systems, save time, and build a more financially resilient business. 

Here are seven of the most common mistakes small businesses make:  

1. Mixing business and personal finances 

When business and personal spending are mixed, it is hard to track cash flow, claim legitimate expenses, or prove your numbers to a lender or the tax department.  

Every small business should have a separate business bank account and, ideally, a business credit card. Pay yourself from the business rather than using the business account like a personal wallet. This simple step makes bookkeeping and reporting far more accurate. 

2. Not tracking cash flow properly 

Failing to track cash flow can lead to sudden shortfalls and panic borrowing.  

Use a basic cash flow forecast that shows expected income and expenses over the next three to six months. Review it regularly so you can adjust spending, chase payments, or arrange financing before issues become urgent. 

3. Misclassifying expenses and income 

If you are guessing where to put things in your accounting software, errors may build u

up over time. Misclassifying expenses and income can distort your profit, affect tax calculations, and make it harder to understand which parts of your business are actually performing well.  

Take time to set up a clear chart of accounts that fits your business, and follow it consistently. If you are unsure where something belongs, ask an accountant once rather than fixing a year’s worth of mistakes later. 

4. Ignoring accounts receivable 

Sending an invoice is not the same as getting paid, yet some small businesses make the mistake of assuming all customers will just pay on time.  

As a result, they forget to follow up, and overdue invoices drift further and further out. This locks up cash you need to run the business. Put a simple process in place: send invoices promptly, set clear payment terms, and follow up as soon as an invoice is overdue. Even a friendly reminder email schedule can dramatically improve your cash flow. 

5. Poor record-keeping and missing receipts  

Shoeboxes of crumpled receipts and missing documents are a guaranteed headache at year-end. Poor record-keeping leads to missed deductions, inaccurate numbers, and more time spent reconstructing the past.  

Find to a system that works daily or weekly, not just at tax time. Use apps or software to snap photos of receipts, store them in the cloud, and attach them to transactions. Keep digital copies of bank statements, contracts, and major purchases so everything is easy to find when you or your accountant need it. 

6. Doing everything manually 

Some owners try to manage their accounts in spreadsheets or notebooks because that is what they know. Manual systems are slow, error-prone, and hard to scale as the business grows.  

Modern accounting software automates bank feeds, reconciliations, invoicing, and reporting, saving both time and money. Choose a platform suited to small businesses, connect it to your bank, and set aside a regular time each week to update your books. 

Automation does not replace oversight, but it does reduce the chances of simple mistakes. 

7. Not getting professional help early enough 

   
   

 Many small businesses wait until they are in trouble before talking to an accountant. By then, fixing mistakes can be costly and stressful.  

A better approach is to get guidance early, even if it is just a few hours of advice each year. An accountant can help you set up your systems, explain your obligations, review your numbers, and suggest improvements. This support can improve profit, reduce tax surprises, and free you up to focus on running and growing your business, rather than fighting with your books. 

Free business advice from Sea to Sky experts 

Community Futures Howe Sound offers free business advice – including small business accounting advice – for business owners and entrepreneurs.  

While we can’t do your accounting for you, we’re here to offer advice, support, and general tips. We can help you get back on track if you feel like you’ve gone off the rails, and get you moving in the right direction with your business finances.  

Book a free, no-strings-attached business advice session and find out how we can help, whether that’s with accounting advice or just about anything else.