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 homemade pizza 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 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 that QuickBooks is “easy to use but hard to set up.” 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 correctly is a lot harder than most people think.

Mistake #3: Hiring a cheap bookkeeper

Sorry to be blunt but in my experience, 95% of bookkeepers have no idea what they’re doing. I’ve spent my entire career cleaning up 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 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 set them up and maintain them correctly from day one. This is especially true if you have a business with multiple owners, partners, or shareholders because everyone’s 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 discrepancies from snowballing into bigger 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 monster that comes back every year and turns all your furniture house upside down. Not surprisingly, the year-end accounting cleanup is typically 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 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 extensions every year is just kicking the can down the road.