Seven common QuickBooks mistakes

QuickBooks is an incredibly powerful tool for small businesses, but like any tool with lots of options, it can get confusing and create problems if not used properly.

Here are seven common mistakes I see small businesses make in QuickBooks and the right way to do it instead.

1. Creating an invoice but not applying the payment to it

This is one of the most common mistakes I see in QuickBooks. When you create an invoice for a customer and then later receive that check, you need to enter it as money received against the invoice. If you will receive multiple checks before going to the bank, it’s best to enter them as undeposited funds first but also record them as money received against the invoice. That way, all six or eight checks show up as one deposit, which is how it looks at the bank also.

2. Not reconciling accounts regularly (or at all)

For many small business owners, bookkeeping may not top the list of their favorite tasks, so it’s common for people to fall behind on reconciling their accounts. The problem is, the longer you wait to do it, the more work it is. And you could be missing mistakes in the mean time.

If your statements come monthly, you should reconcile your account monthly as well. If some statements come quarterly, reconcile your account whenever you get the statement. It may depend on volume though. If you only have six total transactions in a month, you could probably wait a couple months and it would be fine. But if you’re writing 50 checks a month, running a debit card, and have payments on autopay, you absolutely need to reconcile every month.

3. Letting outstanding items go for too long

When you’re reconciling your accounts, it’s good to keep an eye on anything that’s outstanding. As a general rule of thumb, if something’s outstanding more than three months, it’s probably a good idea to reach out and ask them to deposit that check. Life happens, so a gentle nudge may help in case the check got buried in a stack of mail or something else.

Some other outstanding checks may be data entry errors, so it’s good to clear those up as well. If a check’s been outstanding more than six months, go ahead and stop payment so you can fully reconcile the account. If the person contacts you about the check later, you can write another one.

4. Not adding enough information to vendor and customer records

For new customers or vendors, be sure to add as much information as you can to their record. In QuickBooks, you want to focus on the information that will be needed related to billing and accounting. For customers, you want their billing address and phone numbers for key contacts. For vendors, you want the address where you’ll need to remit payment and the right contact for billing questions. If you have multiple contacts and numbers, enter multiples. And then keep that information current as contact people, phone numbers, or addresses change.

5. Failing to keep sales tax numbers updated

QuickBooks does a great job of managing sales tax requirements if you use it appropriately. The best approach is to use tiered taxes so that you enter city, state, or county tax rates separately. When you invoice, those will roll up into one sales tax rate for your customers. If something changes with one of those tax rates, it’s easy to change it in one place with the tiered approach.

6. Creating chart of account categories that are too broad

When it comes to your chart of accounts, it’s easier to add things together than break things apart. If you create extremely broad categories and put lots of expenses in them, it takes a lot of effort to sort those into more detail. But if you create more categories than you need, it’s much easier to add two categories together at a later date. If in doubt, go ahead and add that extra category. You can always change it later if you don’t really need it.

7. Having too many vendors in the vendor list

When recording expenses, you don’t need to enter every single restaurant, gas station, and hotel in your vendor list. If you have some large vendors with whom you do a lot of business, it might make sense to specify those vendors. But otherwise, I recommend approaching vendors on more of a category approach, which means creating a vendor list that includes airlines, auto maintenance, food vendor, gas station, hotel/lodging, etc. Then, as you record a specific expense, you can list it under the appropriate vendor category and use the vendor name in the Ref field to make reconciliations easier.

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