5 bookkeeping mistakes founders make — and how to avoid them

In the early days of building a company, bookkeeping rarely feels urgent. Most founders focus on customers, product, and momentum. Books get attention only when something forces it, such as tax season, an investor request, or a moment of cash-flow stress.

That approach is common for first-time founders and solo operators, but bookkeeping mistakes can compound silently. Left unchecked, they delay decisions, create confusion, and turn routine financial work into last-minute cleanup. This lack of clarity can delay the month-end close.

The good news is that most early-stage bookkeeping issues stem from a small set of predictable mistakes. Once you’re aware of these common errors, you can take steps to prevent them, which is far easier than scrambling to fix them later.

Let’s examine five of the most common bookkeeping mistakes founders make, why they matter, and how to avoid them, so your books stay accurate, timely, and useful.

1. Treating bookkeeping as a retrospective task 

One of the most common mistakes founders make is waiting too long to deal with bookkeeping. Transactions pile up, receipts go missing, and categorization gets pushed to month-end, quarter-end, or tax time.

By then, all context is gone. You may not remember what a charge was for or why a payment was made. Bookkeepers end up guessing based on vendor names, causing errors and delayed financials that are hard to trust.

A better approach is to treat bookkeeping as an ongoing operating habit. Categorizing transactions as they happen, attaching receipts in real time, and setting rules for recurring expenses improves accuracy and reduces follow-up later. The more you can handle bookkeeping in real time, the less work there is to do afterward.

2. Mismanaging 1099 contractors 

Contractors are a core part of many early-stage teams. It’s not a mistake to use them, of course, but it is an error to pay them without collecting the required paperwork upfront.

Many founders pay contractors for months before realizing they never collected a W-9. When January arrives, they scramble to track people down, confirm details, and reconstruct payment histories. In some cases, the required 1099s are never filed, creating compliance risk and potential penalties.

The fix is simple: Collect a completed W-9 before the first payment goes out and make this a standard part of onboarding. A small amount of structure early prevents disproportionate stress later.

3. Misclassifying transactions and lacking a clear chart of accounts 

Inconsistent expense categorization is another common issue. It often shows up as reports that don’t quite make sense, frequent corrections after the books are closed, or incomplete transaction records. For example, vendor names alone provide limited context. A single vendor might be used for software, office supplies, and marketing spend at different times. Without detail and guidance, even experienced bookkeepers are left guessing.

If you regularly find errors during your reviews, this is a sign the process needs more structure, not more cleanup. A clear chart of accounts and basic rules about how expenses should be categorized make a meaningful difference. When transactions are coded consistently, reports become more useful and decisions become easier.

4. Overlooking sales tax and use tax obligations 

Founders often focus on income and payroll taxes while overlooking sales and use taxes. This is especially common for businesses selling physical products, digital goods, or operating across state lines.

As your business grows, it may establish a sales tax nexus in multiple states without your realizing it. Failing to register, collect, and remit sales tax can result in back taxes, penalties, and interest, once the issue is uncovered.

If vendors don’t charge sales tax on certain purchases, your business may still be responsible for use tax – a type of tax owed on purchases when sales tax wasn’t charged to the end user. Identifying exposure early and using tools that automate calculation and filing (such as Avalara or TaxJar) helps prevent small oversights from becoming major liabilities.

5. Staying on a cash basis longer than the business needs

Many early-stage businesses start on a cash basis (capturing transactions only when cash physically enters or exits your business) for tax simplicity. The mistake here is assuming that cash basis accounting always provides the insights you’ll need as your business grows. For instance, if you have subscriptions, annual contracts, or prepaid expenses, cash basis reporting can distort performance. Results may fluctuate month to month due to timing, rather than underlying performance.

But there’s another option: Accrual accounting aligns revenue and expenses with the timeframe when they’re earned and incurred. Many businesses remain on a cash basis for tax purposes while using accrual reporting internally. Making this shift can provide clearer visibility as your business’s complexity increases.

For solo operators and small teams, friction tends to concentrate in a few areas. Receipts are a major source of friction. Without a reliable system to capture receipts at the point of purchase, they disappear. Coding is another, since manually categorizing transactions after the fact is slow and susceptible to errors.

Timeliness matters, too. Some businesses only need quarterly visibility. Others require monthly or even weekly insights to manage cash flow and calculate runway. Whichever cadence you choose, your books need to stay current enough to support decisions before problems arise.

Simple systems reduce friction, such as:

• Saving or photographing receipts when a card is used, or using software (like Mercury) that does this automatically
• Attaching invoices to bill payments 
• Using rules to categorize recurring transactions
• Coding expenses one time, when you enter it, instead of repeatedly fixing them later

You don’t need deep accounting knowledge to recognize when your current setup is no longer working. There are signals that your business has outgrown its current workflows.

Watch out for these signs:

• If your month-end close regularly takes longer than 15 days, your financials are already outdated by the time you see them.
• If you’re constantly correcting coding errors after the books are finished, something is broken upstream.
• If you frequently have back-and-forth with your bookkeeper about transactions or balances sitting in “miscellaneous” or “uncategorized” categories, the process needs attention.

Many founders underestimate how long a clean month-end close process should take. Here are some common timeframes:

• Solo operators: A solo operator with low transaction volume may close in about two days. 
• Early-stage businesses: Very early-stage businesses typically fall within the three to five business-day range. 
• Growth-stage businesses: Growing companies with multiple revenue streams often take five to eight business days. 
• Large companies: Larger teams or companies with international operations may need closer to eight to twelve days.

When month-end closes stretch to 15 days or longer, it’s usually because too much work is happening after the month ends. The more bookkeeping that happens during the month, the faster and cleaner the close becomes.

Understanding which bookkeeping mistakes to avoid can pay off. Following best practices like adding notes to payments, uploading receipts immediately, and integrating banking, bill pay, cards, and accounting systems all improve accuracy. 

The most effective tools and automations will help you reduce friction by capturing information as you work. Automation isn’t about removing judgment. Rather, your focus should be on eliminating unnecessary repetition and guesswork to prevent bookkeeping issues from snowballing. The goal is fewer surprises, not more software.

The biggest change founders can make is habitual. Bookkeeping isn’t a task you endure just once a month or once a quarter. It’s an ongoing process.

Think of maintaining your books like cleaning up after dinner. Putting dishes straight into the dishwasher takes almost no effort. But letting them pile up for a week turns a small task into a chore that feels so insurmountable that you keep avoiding it. Your books work the same way.

When bookkeeping is embedded into daily workflows, it becomes faster, more accurate, and far less stressful. And when you know which common bookkeeping and accounting mistakes to avoid, you’ll easily see how better processes and habits help keep confusion to a minimum.

How long should a month-end close take?

For most early-stage businesses, a clean close should take between two and eight business days, depending on complexity and the size of your business. Anything consistently longer signals process issues.

Do I need a bookkeeper from day one?

No, you don’t necessarily need to hire a bookkeeper from the get-go.. Many founders manage their own books early on. The key is having clear systems and knowing when complexity warrants support.

What is the first bookkeeping system I should set up?

Start with a dedicated business bank account, a clear chart of accounts, and a consistent way to capture receipts and invoices.

How often should I review my financials?

At a minimum, monthly. Some founders benefit from weekly reviews as cash flow tightens or growth accelerates.

The most durable bookkeeping setups all share similar traits: transactions are handled in real-time, expenses are categorized consistently, and tax obligations are managed compliantly. With these basics in place, your business's bookkeeping stays organized without requiring constant cleanup.

It's where having the right software like Mercury can be the difference between month-end chaos and a calm close. Mercury helps founders build and scale reliable bookkeeping habits by automatically matching receipts to transactions, keeping expenses organized in real time, and integrating your banking activity with the rest of your financial stack. Instead of bookkeeping piling up as an unwanted task in the background – it stays manageable and up-to-date as you run your business.

Find out more on how Mercury can help simplify your books here.