As a financial expert working with contractors and businesses, I’ve seen my fair share of bookkeeping nightmares. Recently, we’ve noticed an alarming trend: businesses discovering their books aren’t nearly as accurate as they thought. Here are the most common red flags we find when taking over client accounts – and why they matter to your bottom line.
1. The “Everything Is Miscellaneous” Approach: One of the most common issues we encounter is the overuse of “miscellaneous” or “general expenses” categories. When we see this, it’s usually a sign that whoever’s managing the books isn’t sure how to categorize expenses properly. This isn’t just about being organized – miscategorized expenses can lead to:
• Missed tax deductions
• Inaccurate job costing
• Misleading profit margins
• Difficulty in making strategic business decisions
2. Bank Reconciliations That Don’t Match: Here’s a startling fact: About 65% of new clients come to us with bank reconciliations that haven’t been properly completed for months. Your bank balance and book balance should match after accounting for outstanding items. If they don’t, you’re essentially flying blind when it comes to your cash position.
3. The Missing Paper Trail: “I know I paid that invoice, but I can’t find the record…” Sound familiar? When documentation is missing or incomplete, it’s not just an organizational issue – it’s a red flag for potential audit problems and makes it impossible to track your true financial position.
4. Inconsistent Revenue Recognition: This is particularly crucial for contractors and project-based businesses. We often find income being recorded at the wrong time or in the wrong way. Proper revenue recognition isn’t just about following accounting rules – it’s about understanding your true profitability on each project.
5. Mysterious Balance Sheet Accounts: If your balance sheet has accounts with vague names or unchanging balances month after month, that’s a major red flag. We frequently find “parking lot” accounts where transactions are placed and forgotten, distorting your company’s true financial position.
The Real Cost of Poor Bookkeeping
The impact of these issues goes far beyond just messy books. We’ve seen clients:
• Miss out on tens of thousands in tax deductions
• Make pricing decisions based on inaccurate cost data
• Struggle to secure financing due to unreliable financial statements
• Waste countless hours trying to reconstruct records for tax time
The Solution: Professional Bookkeeping Done Right
Professional bookkeeping isn’t just about entering numbers – it’s about creating a financial foundation that helps your business thrive. Here’s what proper bookkeeping should provide:
• Accurate, timely financial statements
• Clear audit trails for all transactions
• Proper categorization of income and expenses
• Regular reconciliations of all accounts
• Strategic insights for business decisions
Take Action Now
If you’ve recognized any of these red flags in your own books, don’t wait until tax time or until you need a loan to address them. The sooner you get your books in order, the better positioned you’ll be to make informed business decisions.
Want to know if your books are on track? We offer a complimentary review of your current bookkeeping setup. Contact us to learn more about how we can help ensure your financial records are working for you, not against you.
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About McEntire Financial Services: We specialize in providing expert bookkeeping and CFO services to contractors and businesses. Our mission is to help you build a stronger financial foundation for your business through accurate, strategic financial management.
McEntire Financial Services 
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