The devil is in the details
Even if you are taking all of the proper steps to keep your business on track, there can be small details that throw a wrench into all of your plans. When it comes to keeping your financials accurate, one of those details can be getting things categorized correctly in QuickBooks. Even if you are journaling all your entries, making sure no expenses or sales are duplicated and reconciling your accounts, incorrect categorizing can still derail you. Not having transactions in the correct category can cause chaos inside your business reports and lead to ill-informed decisions.
Be the master of your automation
As software becomes more intelligent and attempts to make your life easier, it is important to double-check what your software is doing! For example, Quickbooks has a robust set of automated rules that automation the categorizing of expenses and revenue; however, if one of these rules is incorrect for your particular use case, the errors being made compound very quickly! While it may not be the most exciting task you do each month, taking the time to review how items are getting categorized can prevent countless headaches down the road.
Not all businesses are created equal
Everybody likes shortcuts, and QuickBooks and other financial software providers do all they can to make your life easy. One of the ways many of them do this is to create business category profiles that you can quickly use, which look for typical use cases like are you a retailer or service provider to categorize transactions for you automatically. Yeah, technology! That means that MOST of your entries will accurately be categorized without any additional tedious software setup required by you. The real danger here is that since the software business profiles are prebuilt, the errors will be immediate and compounded regularly if there is a core difference in how you should categorize an entry vs. how the prebuilt business profile decided to categorize the entry. Prebuilt business profiles are another reason to review what is going into each category regularly.
Worth the review!
When you consider the fact that all of your transactions will be making it into a category, it should be readily apparent how important it is to get this step correct. Taking the time to review where transactions are categorized could ensure that you have accurate information about your margins and impact your real-world financial decision-making.
Not having your categories correctly reflected on your P&L and Balance Sheet can be why you can’t refinance your house or get a business line of credit. Please don’t risk it!