Are You Using QuickBooks Online Correctly? 7 Common Mistakes Small Business Owners Make
QuickBooks Online is a powerful tool for managing your business finances, but simply having QuickBooks doesn't mean your bookkeeping is accurate.
Many small business owners start using QuickBooks with little to no formal training (understandably!).
Unfortunately, some of the most common bookkeeping mistakes aren't obvious until tax season, when a business applies for financing, or when the owner starts wondering why their financial reports don't make sense. Or worse, it isn’t caught until you hire a professional bookkeeper and have years of missed expenses and tax deductions.
With the right training and a few good habits, you can confidently manage your bookkeeping and make better financial decisions. Here are seven common QuickBooks Online mistakes we see small business owners make and how you can avoid them.
1. Letting QuickBooks Rules Automatically Add Transactions
QuickBooks rules can absolutely save time! But they can also create some pretty big bookkeeping headaches when used incorrectly.
The biggest mistake? Using the "Auto-add" feature.
When Auto-add is toggled on, QuickBooks automatically categorizes transactions to your books without you ever reviewing them. Sounds convenient util a year or two later when you've forgotten about that rule that categorizes every Target purchase as office supplies, even though that might not apply anymore!
I've seen too many sets of books where a well-meaning CPA or business owner set up rules to auto-add years ago. Now they're switching accountants or coming to us for professional bookkeeping help, and we have hours of cleanup work to fix transactions that were auto-categorized incorrectly.
Here's the good news: You can STILL save a ton of time without Auto-add, I promise!
Simply create your rules with Auto-add turned OFF. Then:
Go to your bank transactions and filter to show transactions with rules.
Quickly review the suggested categories.
Select and accept the transactions that are correct.
See, you can do that in under 5 minutes (probably less than 2!)
And you've actually reviewed what's going into your books instead of blindly trusting rules you may have set up years ago.
What to do instead: Setup rules and toggle off the auto-add. Always quickly review transactions before accepting the rules.
2. Skipping Monthly Bank Reconciliations
I have had training clients ask if it was REALLY necessary because it felt like duplicated work. It is duplicate, BUT if you did your books correctly it should be a very quick process! Also it is inherently duplicated work as you are doublechecking everything.
Just because your bank balance looks correct in QuickBooks doesn't mean your books are accurate.
This process can helps identify missing transactions, duplicates, and other discrepancies.
It is confirming that what is in QuickBooks is truly in your bank statements, and that EVERYTHING on your bank statement is in QuickBooks. Don’t miss out on ANY deductions!
What to do instead: Reconcile every bank and credit card account monthly or quarterly. (Before taxes at the VERY least!) This is one of the most important habits for maintaining accurate financial records.
3. Recording Income or Expenses Twice
This is especially common when business owners use QuickBooks invoicing, bill payments, or payment processing integrations.
For example, you might record an invoice payment in QuickBooks and then accidentally add the corresponding bank deposit as new income. Suddenly, your reports show more revenue than your business actually earned.
**This will always get caught during reconciliation luckily!
What to do instead: Learn when to match existing transactions instead of adding new ones. Understanding how money moves through QuickBooks can prevent costly reporting errors.
4. Misclassifying Owner Draws and Contributions
One of the most common mistakes we see is business owners recording money they take out of the business as an expense or money they contribute as income.
These transactions often belong in equity accounts rather than on your Profit and Loss statement.
Incorrect classifications can significantly distort your financial reports.
What to do instead: Understand how owner transactions should be recorded for your specific business structure and work with your accountant when necessary.
5. Not paying yourself a reasonable salary as an S-Corp Owner
If you are an S-Corp you need to be paying yourself a “minimum justifiable salary” on payroll. Then the rest of the profit you can take as a distribution (or leave in the business as retained earnings for a rainy day fund.)
The IRS specifically said they will be ensuring people are paying themselves that minimum justifiable salary. They want their cut of the payroll taxes.
I have a past blog post about how to pay yourself and about S-Corps in general, take a look at that or reach out if you have any questions.
6. Not Understanding Your Financial Reports
QuickBooks can generate a Profit and Loss statement and a Balance Sheet.
But do you know what those reports are telling you?
Your Profit and Loss statement shows profitability, while your Balance Sheet provides a snapshot of what your business owns and owes.
My tip is always look at your profit and loss with multiple columns of numbers! What does this mean? It means you can look at trends, my favorite to look at is year-date showing columns by month. You can also look at it by Quarter or by year. You can also compare to prior years.
There is so much you can do with the filters and viewing your data in a different way can sometimes be just the eye opener you needed.
What to do instead: Review your financial reports monthly and learn what the numbers mean. Accurate bookkeeping becomes much more valuable when you use the information to make business decisions.
7. Waiting Until Tax Season to Fix Problems
It's easy to put bookkeeping on the back burner when you're busy running a business.
Unfortunately, waiting until the end of the year to review your books often means spending hours tracking down missing information, correcting errors, and trying to remember transactions from months ago.
What to do instead: Set aside time each week (or each month at least) to review transactions and reconcile your accounts consistently. A consistent bookkeeping routine is much easier to maintain than a year-end cleanup.
You Don't Have to Figure Out QuickBooks on Your Own
If you've made some of these mistakes, you're certainly not alone. QuickBooks Online has a lot of capabilities, and understanding how to use them properly takes time.
At 3 Lakes Bookkeeping, we believe business owners should feel confident in their financial information, whether they choose to outsource their bookkeeping or manage it themselves.
That's why we offer QuickBooks Online classes and personalized training designed to help small business owners:
Navigate QuickBooks Online with confidence
Properly categorize and manage transactions
Understand bank feeds, matching, and reconciliations
Use automation and bank rules effectively
Read and understand financial reports
Establish a consistent bookkeeping routine
Our goal isn't just to teach you which buttons to click. It's to help you understand why you're doing something and how it impacts your business finances.
Ready to Feel More Confident in QuickBooks?
Whether you're brand new to QuickBooks Online or you've been using it for years and aren't sure you're doing everything correctly, we're here to help.
Explore our upcoming QuickBooks Online classes or contact us to learn more about personalized training.
Visit www.3LakesBookkeeping.com/Classes to get started.
3 Lakes Bookkeeping LLC provides bookkeeping and QuickBooks Online training for small businesses in Western Wisconsin, Eastern Minnesota, and virtually nationwide.