Small Business Bookkeeping Red Flags: Your Top Five “Look Out!” List
- Lyle Mustard
- 5 days ago
- 5 min read
Do you ever feel like your finances are slipping out of control?
Have you had one of those “I didn’t even see that coming!” moments that left you reeling?
Small bookkeeping mistakes can turn into big problems fast.
Sometimes they’re already in flames right in front of you, and you don’t even notice. Not until they’ve burned down part of the castle you worked so hard to build.
The good news?
You don’t need to become a master of disaster recovery if you can spot the smoke before it turns into fire.
Here are five of the most critical red flags to help you find those hot spots before they spread.
Unreconciled Bank Accounts
Good bookkeeping for your small business means entering your bills, receipts, and invoices as soon as possible. It means getting the details right - the dates, the related contacts, and especially the accounts.
But that’s all for nothing if your records don’t align with the real values in your accounts. Mismatched statements can go from a little off to way off in the wild before you can say “overdrawn.”
You can have all your ducks in a row, even automatic payments set up, and still miss payments, rack up overdraft fees, or file inaccurate reports if your books aren’t synced with your bank.
How to fix it:
Set up a workflow and reconcile often - monthly at least, weekly if you can. It can really save your bacon!
Mismatched accounts are where small errors turn into big mysteries.
Consistent reconciliation means cleaner books, fewer surprises, and confident decisions.
Missing or Delayed Invoices
Invoices make the business world go ‘round. Whether the money is owed by you or owing to you, the details are all in the invoice.
Which is great until Wanda’s Widgets doesn’t deliver your parts order because your account is overdue for a payment.
You were going to scan the invoice into your system, you really were!
First thing tomorrow. Ninety tomorrows ago.
It’s just as bad if you don’t send the invoices out. You can’t pay for those overdue widgets if your clients aren’t paying you.
How to fix it:
Set up a protocol for invoices in and out, and make sure it includes mini-audits to catch little stragglers and left-behinds.
Details fade quickly from memory - better to discover a missed invoice at the end of the week instead of the end of the year.
Negative or Unusual Cash Flow Trends
Once your invoicing system is in place and you’ve got a rhythm of money going in and out, you get an idea of how much the numbers go up and down within each week, month, and year.
Keeping an eye on these flows can help you catch unusual ups or downs to identify problems. Sudden spikes in revenues or expenses could indicate any number of issues, like something as simple as data entry errors or even something as nasty as fraud!
Steady bookkeeping means you have an accurate eye on the flow of the lifeblood of any business - the cash! Even if you’re not in it for the money, you can’t do it without the money.
Runaway entry errors or interest leaks can do more than inconvenience you - they could breach a grant’s terms and jeopardize your operations.
How to fix it:
Create a running financial narrative with simple cash flow projections. Take your best guess at what’s coming in and out, then update it with real flows over time.
Review it monthly, not quarterly so you can spot trouble early.
This can be the difference between making a correction and searching for a bailout.
Lack of Supporting Documentation
It’s all well and good to claim that you spend a certain amount on these supplies, or that you earned this number from a big sale, but the burden of proof is on you. If you can’t prove it on paper - or its digital equivalent - the taxman will assume it’s a fairy tale.
Missing receipts, invoices, or contracts makes tax filings and audits a minefield. You need to be able to prove each of your financial claims, both in and out the door, and prove your legally-binding words via signed contracts. Without these, you could just make up anything you wanted, and the CRA probably won’t believe you.
An audit can quickly turn into a catastrophe if you don’t stay on top of scanning, uploading, and properly filing each and every relevant document, big and small, to prove that your numbers are real.
How to fix it:
Set up a system of tracking documents, ideally all in one place. Many digital bookkeeping solutions nowadays are cloud-based, so it’s as simple as making sure you include document scans and uploads with each entry.
To improve your workflow, there are many document pre-processing apps and programs that will scan the document and enter the information for you, such as Dext for receipts. These can make even the most distracted business owner an administrative dynamo.
Out-of-Date Records
It is an understatement to say that business ownership is a busy game. Keeping up with everything in a timely fashion is a full-time task all its own, let alone keeping your eye on your main deliverable, whatever product or service that may be.
It’s all too easy to fall behind on entering your receipts or entering them incorrectly because you forgot the small details. But that’s nothing compared to missing a report submission deadline that can violate the terms of an agreement and lose clients, trust, and sometimes even the stability of the business itself.
How to fix it:
This builds on the four points above - get systems in place to establish a rhythm with all of your business-critical administrative and financial needs. Don’t rely on “I’ll remember it because it’s important,” and especially don’t expect your very human brain to work with machine precision and timing.
Set up your systems and protocols, and don’t be afraid to hire appropriate support where you would otherwise be overstretched. Many new business owners think that they can handle bookkeeping or marketing themselves until they burn out and file for bankruptcy.
Many people starting a business are chasing a dream. What is missing from the dreaming phase is the logistical nightmare that comes to their door when they learn the hard way that planning and executing a business is not an art - it’s a science.
Inspiration and motivation get you started, but the real work comes from the meticulous, often mundane habits that turn that dream into a foundation.
Which one of these red flags is the biggest challenge for you?
Or maybe you struggle with one that we didn’t mention here - let us know in the comments below how you keep your red flags from turning into fires.
Written by Lyle Mustard, freelance writer for Stanley Young Business Strategies
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