Running a startup is no easy task. Between managing clients, sales, and growth, it's easy to lose track of what's happening in your books. But if your bookkeeping isn't right, you may end up making decisions based on the wrong numbers - and that's risky.
Here are 5 common mistakes I see many business owners make (yes, my own clients too!), and what you should do instead:
1. Capital Expenses in P&L? That's a No-No.
If you buy something for long-term use (like a laptop or machinery), it's a capital expense. But many people book it as a regular expense in the Profit & Loss account. This reduces your profit unnecessarily. Instead, classify it as an asset - it'll reflect more accurately in your financials.
2. [Sales - Expenses] ≠ Your Profit
Your profit isn't just sales minus expenses. You must also include the value of stock. Ignoring stock valuation can show either too much profit or too much loss. Always do a proper stock count at year-end and include its value.
3. Prepaid Expenses? Split It Smartly.
Let's say you pay for a service in March, but it's for the next financial year. Don't record the whole amount in this year's P&L - that'll reduce your current year's profit. Instead, show the unused portion as an asset (prepaid expense) and carry it forward.
4. Forgot to Record Outstanding Expenses? Oops.
If you haven't paid an expense yet but it belongs to this financial year (like salaries or bills), it still needs to be recorded. Otherwise, your profit will look higher than it really is. Book it in the P&L and show it as a liability in the balance sheet.
5. Mixing Business with Personal? Big Mistake.
Avoid using your business account for personal expenses. It messes up your actual business profits. If you need to take money out, record it as drawings or a separate personal expense ledger.
Final Thoughts
These small errors can lead to big confusion later - especially during tax filing or when you're trying to raise funds. Clean books give you a clear picture and help you make better decisions.
💡 Not sure if your books are on track? I'd be happy to take a look and guide you. Reach out at aadhirayamcs@gmail.com to get expert help tailored for your business.