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

Therefore, I figured it was time to put my own list out into 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

QuickBooks is famous for being easy to use, but it’s difficult as heck to set up correctly. If you don’t have prior experience with QBO and a working knowledge of accounting (especially the chart of accounts), I can pretty much guarantee you’re going to make mistakes. Setting QBO up properly is a lot harder than most people think.

Mistake #3: Hiring a cheap/bad bookkeeper

Sorry to be blunt here but in my experience, 90% of bookkeepers have no idea what they’re doing. I’ve spent my entire career fixing their mistakes and in many cases I’ve ended up throwing their work in the garbage and starting a new QBO file from scratch. It’s quicker and easier than trying to find and undo all their errors.

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

I can’t explain all the nuances of the capital accounts here but suffice to say, it’s critical to handle them 100% correctly from day one. This is especially true if you have a business with multiple owners, partners or shareholders because the money-ins and money-out’s can get complicated. And everyone’s going to need a clean, accurate K-1 at the end of the year for their personal tax returns.

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

If you don’t know what a “bank rec” is, I encourage you to sign up for our free 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 (monthly at least) to prevent small mistakes and discrepancies from snowballing into larger problems.

Mistake #6: The year-end accounting cleanup

I’ve seen the same drill again and again during my career: “Yikes, it’s 12/31 again and our books are a mess. We need to clean up all the problems and get everything over to our CPA so they can do our tax return!” This chaos is stressful and frustrating for business owners, like a giant monster that comes back every year and turns your furniture upside down. But if you have a good accountant with strong daily/weekly/monthly systems in place, then your year-end accounting should be relatively straightforward and easy to manage.

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 tax extensions truly are necessary, but in most cases they’re avoidable. Like I just said: 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.