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 contribute my own list 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 (correctly).” If you don’t have solid prior experience with QBO and a working knowledge of accounting (especially the chart of accounts), you’re going to make mistakes. Setting QBO up properly is a lot harder than most people think.

Mistake #3: Hiring a bad bookkeeper

Sorry to be blunt but in my personal experience, 95% of bookkeepers have no idea what they’re doing. I’ve spent my entire career fixing their mistakes and in most cases, I end up throwing their work in the garbage and starting a new QBO file from scratch.

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 and inconsistencies from snowballing and creating 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 last minute chaos is stressful and frustrating for business owners, like a giant octopus 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 avoidable. If you have a good accountant with strong systems in place, then you should have no problem closing your books and getting clean financials to your tax preparer by January 15th. Filing tax extensions every year is just kicking the can down the road.

I could keep going for a while here but seven has a nice ring to it and these are the biggest mistakes off the top of my head. Therefore, I’m going to stop here and simply say: “Please be aware of these mistakes and do your best to avoid them.”