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 design mistakes, classic backpacking mistakes, you name it.

Therefore, I figured it was time to add my own list to the canon. Without further adieu, here are seven classic accounting mistakes I’ve seen small businesses make over and over again during my career as a jack-of-all-trades accountant/CPA/Controller/QuickBooks fixer:

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 basic differences before you choose.

Mistake #2: Setting QBO up incorrectly. There’s an old saying among CPAs: “QuickBooks is easy to use but hard to set up correctly.” If you don’t have prior experience with QBO and a working knowledge of accounting concepts and terminology (especially the chart of accounts), you’re going to make mistakes. No matter what Intuit says on their website, setting QBO up properly is a lot harder than people think.

Mistake #3: Hiring a clueless bookkeeper. Sorry if this sounds harsh but in my experience 95% of bookkeepers have no idea what they’re doing. I’ve spent my entire career fixing their mistakes and the truth is that a bad bookkeeper does more harm than good. In many cases, I end up throwing all their prior 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/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 important. Long story short: Your bank and credit accounts need to be reconciled on a regular basis to prevent small accounting errors or inconsistencies from snowballing and creating bigger problems.

Mistake #6 “The Year-End Accounting Cleanup.” I’ve seen the same fire drill over and over again during my career. “Yikes, 12/31 is here again and our books are a mess! We need to clean up all the mistakes 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 direct result of the five mistakes I just mentioned.

Mistake #7 Filing tax extensions year after year after year. Some accountants think it’s OK to file tax extensions every year, but I’m not one of them. Sometimes tax extensions truly are necessary — for example, with personal tax returns where people haven’t received all their year-end tax docs yet. However, most business tax extensions are unnecessary and avoidable. If you have solid accounting processes in place and your accountant is doing everything they’re supposed to be doing throughout the year, then you should have no problem closing your books and getting clean, tax-ready 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 keep going here because there are several more mistakes I see small businesses make all the time, but seven has a nice ring to it and these are the biggest ones on my list. Therefore, I’m going to stop here and say: “Please be aware of these mistakes and do your best to avoid them.”