Accavallo & Company, LLC

Four Bookkeeping Pitfalls for Small Businesses to Avoid

Accurate bookkeeping is essential for operating a successful small business. Inadequate bookkeeping practices can lead to significant, long-lasting consequences. Here are four common pitfalls — and how to avoid them with the right knowledge and tools.

1. Commingled Bank Accounts

Maintaining a dedicated bank account for business transactions is crucial. Using personal accounts for business purposes can create legal and tax complications. Separate accounts simplify the tracking of business expenses and tax return preparation.

With a separate bank account, you can streamline payments for recurring business expenses. Regularly review and reconcile your business records to bank statements to ensure accuracy and compliance.

2. Overreliance on Spreadsheets

While Excel is versatile, it lacks the automation and real-time updates provided by dedicated accounting software. Using spreadsheets for bookkeeping can result in inconsistent transaction treatment and data entry errors.

We recommend investing in dedicated accounting software like QuickBooks®, NetSuite®, or Xero™. These solutions streamline financial reporting processes and integrate with bank and credit card accounts. Cloud-based platforms also offer access from any device, ensuring you stay connected to your business finances at all times.

3. Using Personal Credit for Business Expenses

Relying on personal credit sources can provide quick funds but often comes with high interest rates and fees. Mixing personal and business expenses complicates accounting and tax processes.

To establish a business credit line, contact your bank and complete an application. Though it may take time, it is a worthwhile effort. A business credit line helps build a credit history in your company’s name, essential for future growth and investment opportunities.

4. Lax Recordkeeping Practices

Accountants dread when small business owners arrive with disorganized receipts or no documentation. Well-prepared owners maintain organized records through paper filing systems, digital storage, and backup solutions, substantiating expenses for tax and accounting purposes.

Retain original source documents such as receipts, invoices, bank statements, and contracts. This practice not only helps track financial performance but also ensures compliance during tax filings. The IRS requires these documents to validate deductions and credits; without them, you risk disallowance and penalties.

Business records typically need to be retained for three to seven years, depending on the record type. Contact us for specific record retention guidelines tailored to your business.

We Can Help

Implementing sound bookkeeping practices improves your financial management and confidence in your financial reporting. It reduces the stress of running a business and provides essential information for thriving in today’s competitive markets. Contact us for assistance in building a solid bookkeeping foundation.

Let our expertise guide you in avoiding these common pitfalls and securing your business’s financial health. Reach out to us today at [email protected] or call 203-925-9600 to learn more about our comprehensive bookkeeping services.

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Sherri Fisher is a Tax Manager at Accavallo & Company, LLC.  Sherri has longstanding expertise in Trust and Estate Taxation, Eldercare, and Estate planning. Sherri appreciates the relationships she has built with estate planning attorneys and advisors, to provide a team approach to assisting her clients. Sherri also has seasoned experience in business and individual taxation and is partial to assisting start-ups in developing overall accounting and operating plans.

Prior to joining Accavallo & Company, LLC, Sherri was a manager in a large firm, servicing high net worth trust clients, business, and personal clients. She was also a Partner in a large bookkeeping firm, which specialized in cloud accounting systems for regional and national companies. Sherri led a team in assisting clients to organize their accounting systems.  She is a graduate of Florida Atlantic University with a B.S. degree in Accounting.    

Sherri’s experience includes working with companies and organizations in a variety of industries including:

  • Investment Trusts

  • DAPT and Family Investment Partnerships

  • Estate and Probate Administration

  • E-Commerce

  • Manufacturing

  • Construction

  • Real Estate Investment

  • Marketing and Service-based industries

In addition to her professional accomplishments, Sherri is an Intuit Advanced Pro Advisor, Intuit Future Firm Advisory Board member, member of the Valley WIN Network, and proudly served as past Connecticut Public School liaison for the Yale Tommy Fund for Childhood Cancer. Sherri enjoys time with her family, Cleveland sports, thrifting and gardening.