How to fix Quickbooks accounting mistakes

Despite the readily available knowledge hub and the free guided setup for QuickBooks members, there are still plenty of potential pitfalls. 

In this post, take a look at eight of the most common QuickBook mistakes that we see eCommerce businesses make and how to avoid each one. 

👉 Bonus: Download our free Quickbooks ecommerce toolkit here.

1. Waiting to connect all bank, credit card, and payment gateway accounts

The top mistake to avoid when getting started with QuickBooks for eCommerce is waiting to connect the various bank, credit card, and payment gateway accounts for your business. Failure to instantly connect all business accounts to QuickBooks will not only cause inaccuracies in financial reporting but will also allow expenses to continue to slip through the cracks in the meanwhile. Instead, link each of your multiple financial accounts to QuickBooks as soon as possible. 

2. Failing to customize your Chart of Accounts

Your Chart of Accounts is how you categorize your sales and expenses. Once you connect your business accounts, QuickBooks will automatically populate your Chart of Accounts with a few standard ones, like Income and Expenses.

Though this basic iteration of your QuickBooks Chart of Accounts is helpful, it will require a bit of customization to capture the entirety of your bookkeeping,  cash flow management, and financial reporting process and not just the pieces recognized from your synced data. 

3. Not having an expense tracking system 

The third most common mistake when using QuickBooks for eCommerce is failing to implement a system for tracking and managing expenses. Failure to upload and properly categorize business expenses can lead to a variety of financial inaccuracies, ranging from having to pay more in taxes (since you aren’t maximizing deductions) to a severely skewed profit and loss statement (more on these reports in mistake number seven).

4. Not paying yourself a salary

Neglecting to pay yourself a reasonable amount can lead to you borrowing money against the business when in a bind, or worse, lead to confusion when attempting to separate business revenue from personal income. 

There are typically two methods for small- to mid-sized eCommerce business owners to earn money: a traditional salary or an owner’s draw.

In a traditional salary, you determine a set wage and issue yourself a paycheck each pay period with every other employee. 

In an owner’s draw, you withdraw funds from the business for personal use at routine intervals or when necessary. Several factors influence which payment method you select, but your business classification is the ultimate deciding factor. 

For instance, if your business is a partnership, you cannot earn a salary. This is because the Internal Revenue Service (IRS) forbids taxpayers to be both a partner and an employee at the same company. If your business is a Limited Liability Company (LLC), on the other hand, you can choose to pay yourself a salary that’s similar to what those in similar positions at other businesses earn.

5. Paying yourself improperly through an S Corp

As mentioned above, your business classification is the ultimate deciding factor for whether you pay yourself a salary or take an owner’s draw.

If you have an S Corp, you have to pay yourself a salary. First, decide on a reasonable amount for the type of work you contribute to the business. To not alarm the folks at the IRS, select an amount that’s similar to what other business owners make per year — for reference, the average salary for a small business owner is $68,863. Bear in mind, you will need to withhold self-employment tax as well.

To avoid withholding self-employment taxes on your whole salary, it’s possible to allocate a portion as distributions. Distributions are a type of payout from your business’s equity. They can come from the accumulated profits of your eCommerce business and are not factored into your taxable income. For instance, instead of a $75,000 salary, take a $50,000 salary and distributions of $25,000.

6. Falling behind on your monthly bookkeeping

Unfortunately, failing to maintain bookkeeping on a monthly basis means losing sight of accurate expense monitoring, business budgeting, sales forecasting, and more.

Be sure to designate time to reconcile Quickbooks with your bank statements each month to guarantee your record keeping is parallel with your income and expenses. Confirm all bank, credit, and payment gateways are properly synced to your QuickBooks Chart of Accounts and verify that you’ve uploaded the necessary physical receipts to corroborate miscellaneous business expenses. 

7. Not establishing a recurring financial reporting cadence 

Business bookkeeping and financial reporting go hand-in-hand. So, it’s no surprise that the financial reports for an eCommerce business should also be reviewed on a monthly cadence — or even a weekly cadence for optimal financial accuracy. Failure to establish a recurring cadence means your business can never set a true baseline for operational performance, as there’s no consistent data. 

Balance Sheet

A balance sheet is a financial report that details your eCommerce company’s assets (i.e. (what you own), liabilities (i.e. what you owe), and shareholder equity (i.e. what’s been invested) to provide a snapshot of the business’s finances in a given period. 

Profit and Loss (P&L) Statement

A profit and loss statement, often referred to as a P&L, is a financial report that summarizes the costs, expenses, and revenues your eCommerce company incurred during a given period. This report reveals how able (or unable) your company is to generate profit by reducing costs, improving revenue, or both. 

Cash Flow Forecast

A cash flow forecast, also referred to as a cash flow statement, is a financial report that analyzes the movement of money in and out of a business. The purpose of a monthly (or weekly) cash flow forecast is to assess how well your company generates cash to cover its debt and fund any operating expenses, like utilities and payroll.

8. Not implementing financial management systems for fraud prevention

A lack of fraud prevention isn’t just a common QuickBooks mistake, it’s a systemic issue that costs Americans between $426 billion and $1.7 trillion each year. And it’s not just large organizations that fall victim to fraud — small businesses with less than 100 employees are more likely to suffer from a lack of fraud prevention systems. Case in point? The BestSelf.Co $230,000 embezzlement story. 

BestSelf.Co, a small eCommerce brand, hired an Inventory and Wholesale Manager in 2018 to handle logistics between the company’s factories, warehouse, and customers. Over two years, the crooked manager used his access to ultimately intercept customer requests, create fraudulent invoices, and steal $180,077.65 of company revenue and $88,000 in lost product and shipping costs.

Unfortunately, BestSelf.Co is just one example of the countless eCommerce retailers and small businesses that have lost thousands of dollars to fraud. Whether it’s embezzlement, money laundering, or flat-out employee theft, a lack of financial management systems for fraud prevention leaves an organization at significant risk.

Here are three fraud prevention things you can do: 

• Reconcile your accounts regularly – This should be done monthly as it ensures you not only have the right information but also can catch fraudulent activity faster.
  
• Audit who has access to your accounts – To keep the risk of fraud to a minimum, be sure to also have a process in place for who has access to your QuickBooks account and what level of access they have. In addition, there should be checks and balances too. For instance, whoever can create invoices should NOT be the same person who approves them.
  
• Set up proper inventory management processes – For eCommerce businesses, errors within inventory levels are not only costly in the financial sense but also for customer satisfaction levels — how can you complete a recent customer order if you don’t actually have the correct inventory? So, it goes without saying that manual inventory processes and spreadsheets that are highly error-prone and can be easily faked are not ideal. 

How Bean Ninjas can help keep your Quickbooks accounting in order 

Whether you are looking for help getting your Quickbooks account set up or need regular eCommerce bookkeeping support, our team at Bean Ninjas is here to help. Schedule a free call here.