I don’t know about you but I love articles that talk about “classic mistakes” and then give you a list of what they are. Classic marketing mistakes, classic website mistakes, classic backpacking mistakes, you name it.

Therefore, I figured it was time to make my own contribution to the world. Here are seven classic accounting mistakes I’ve seen small businesses make over and over again during my career:

Mistake #1: Choosing the wrong legal entity

Sole proprietor, LLC, S corp? Choosing the right business entity is an important decision that affects both your accounting and your taxes, so make sure you understand the differences before you choose.

Mistake #2: Setting QBO up incorrectly

There’s an old saying among accountants: “QuickBooks is easy to use but hard to set up.” If you don’t have significant prior experience with QBO and a working knowledge of accounting (especially the chart of accounts), you’re going to make mistakes. No matter what Intuit says, setting QBO up correctly is a lot harder than people think.

Mistake #3: Hiring a bad bookkeeper

In my personal experience, 95% of bookkeepers have no idea what they’re doing. I’ve spent my entire career finding and fixing their mistakes, and unfortunately a bad bookkeeper usually does more harm than good. In many cases, I end up throwing all their work in the garbage and starting a new QBO file from scratch (it’s quicker and easier that way).

Mistake #4: Not setting up the owner/partner capital accounts correctly

I can’t explain all the nuances of the capital accounts here but suffice to say, they’re critical accounts that need to be set up and maintained correctly from day one. This is especially true if you have a business with multiple owners, partners, or shareholders because everyone is going to need a clean K-1 at the end of the year.

Mistake #5: Not reconciling your bank and credit card accounts regularly

If you don’t know what a “bank rec” is, I encourage you to sign up for our email series and learn what they are and why they’re so important. Long story short: Your bank and credit accounts need to be reconciled on a regular basis to prevent small mistakes or inconsistencies from snowballing into bigger accounting problems.

Mistake #6: The year-end accounting cleanup

I’ve seen the same drill over and over again during my career. “Yikes, 12/31 is here again! We need to clean up our books and get everything to our CPA so they can do our tax return.” This drill is stressful and frustrating for business owners, like a giant monster that comes back every year and turns all your furniture house upside down. Not surprisingly, the year-end accounting cleanup is usually a result of the four mistakes I just mentioned.

Mistake #7: Filing tax extensions every year

Some accountants think it’s OK to file tax extensions year after year, but I’m not one of them. Sometimes business tax extensions truly are necessary but in most cases they’re unwarranated and avoidable. If you have a good accountant and the right processes in place then you should have no problem closing your books and getting clean financials to your tax preparer by January 15th (or January 31st at the latest). Filing tax extensions every year is just kicking the can down the road.

I could add a few more to this list but seven has a nice ring to it and these are the biggest mistakes I see. Therefore, I’m going to stop here and simply say: “Please be aware of these mistakes and do your best to avoid them.”