Six bookkeeping mistakes made by small businesses
Posted on 15th July 2019 at 13:20
When we start our own business, we do most things ourselves, even the things we don’t like, including the bookkeeping.
While it might be tempting to focus on other things, leaving your bookkeeping until the last minute can cause problems.
Here are six common bookkeeping mistakes we see small and new businesses make, along with our suggestions about how to avoid them.
One: Putting off your bookkeeping
“I’ll do it tomorrow” really doesn’t work well for bookkeeping. Often it becomes next week, and then next month and soon VAT and tax deadlines are looming, and you aren’t ready. More importantly, you won’t have a clear idea of what’s happening in your business.
The best way to tackle this problem is to put some time in your diary every day or every week to update your financial information and to check that you understand what your figures are telling you. An accounting package like Xero can really help you to do this with minimum fuss and duplication. Better still, you will be able to see and update your figures when you’re out and about too.
Two: Mixing business spending and personal spending
This is a recipe for confusion. It’s really easy to lose track of what you have done, and you can find yourself out of pocket very quickly. In just a few days you will struggle to remember which items in your bank or credit card statement were for your business. You will waste a lot of time searching through your receipts to work it out.
Our recommendation is that you have a business credit or debit card so that you will always have a clear record of your business-related spending. This will help to avoid mistakes in your tax return too.
Three: Unnecessary bookkeeping costs
You could ask your bookkeeper to keep track of your spending, but you will have to pay for their time.
Spending a little time to regularly update your records will make it much easier for your bookkeeper to correctly code all your income and expenditure, to create useful reports for you and to work out what you need to put aside for VAT and tax, so it will save you money in the long-run.
Four: Out of date information
If you don’t collect all your receipts and purchase invoices or keep track of your sales, you won’t have a clear view of your business cashflow. You might think your revenue is much higher than it actually is. You could even make purchases or borrow, based on information that is out of date.
Keep and record receipts for even the smallest expenses; even cups of coffee and stationery. All your allowable business expenses can help to reduce your tax bill, but HMRC could ask to see your receipts.
Many accounting software packages include the option to scan your receipts and allocate them to the right codes immediately, so you have an immediate view of your cashflow. You won’t have to worry about lost receipts any more.
Five: Cash payments
It’s even harder to keep track or payments that are made in cash. You might some cash and then spend it on one item or several. Without and electronic records, your cash receipts can become confused very quickly. If you work with petty cash, it’s important to have a good process to keep track of it and it should ideally be reconciled every day.
Six: Not reconciling your accounts regularly
If you don’t reconcile your records with your bank statement at least once a month, you will quickly build-up a backlog of financial checking that will take a long time to resolve. The longer you leave it, the harder it will be. Discrepancies in your records will be hard to track down and problems with your processes could go unnoticed to too long. On the other hand, a regular review of the financial health of your business can highlight areas for improvement and opportunities that you might otherwise miss.
If you’re struggling with some of these common problems, we’ll be happy to give you some advice. Just give us a call.
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