Six bookkeeping mistakes made by small businesses
Posted on 12th August 2024
Are you planning to start a business?
In the beginning we often do most things ourselves, even the things we don’t like, including bookkeeping.
When you’re busy finding new customers and delivering products and services, your bookkeeping might not seem like a priority. However, this can quickly lead to problems.
Here are six common bookkeeping mistakes we see new small businesses make, along with our suggestions to help avoid them.
One: Putting off your bookkeeping
“I’ll do it tomorrow” doesn’t work well for bookkeeping. Often it becomes next week, and then next month. Soon VAT and tax deadlines are on the horizon, 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. You can also check you understand what your figures tell you. An accounting package in the cloud like Xero can really help you do this with minimum fuss and duplication. Better still, you can see and update your figures when you’re out and about.
Two: Mixing business and personal spending
It’s best to keep things simple so a separate business bank account is a very good idea. If you pay for things out of your personal account you’ll quickly lose track of your business spending. You’ll soon find yourself out of pocket and struggling to remember which items in your statements were for business. You’ll also waste a lot of time searching through your receipts to work it out.
We recommend you have a business credit or debit card so you’ll always have a clear record of business-related spending. This helps you avoid mistakes in your tax return too.
Three: Incurring unnecessary bookkeeping costs
You could ask your bookkeeper to keep track of your spending, but you will have to pay for their time.
When you regularly update your business records it’s much easier for your bookkeeper to correctly code all your income and expenditure. They can then create useful reports for you. Knowing what to put aside for VAT and tax will save you time and money in the long run.
Four: Using out of date information
Without clear records of your receipts, purchase invoices and 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 You could even make purchases or take out a loan based on out of date information.
Make sure you keep and record receipts for your business expenses, even stationery and office cleaning products. 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. You’ll always have a reliable view of your cashflow and won’t have to worry about lost receipts any more.
Five: Losing track of cash payments
It’s hard to keep track of payments made in cash. You might take out some cash and then spend it on one item or several. Without electronic records, your receipts for cash payments can become confused very quickly. If you work with petty cash, it’s important to have a good process and ideally reconcile it every day.
Six: Not reconciling bank accounts regularly
If you don’t reconcile your records with your bank statement every month you’ll quickly build-up a backlog of financial checks. The longer you leave it, the harder it is to match things up. Discrepancies are always hard to track down and problems with your processes could go unnoticed for too long. On the other hand, a regular review of the financial health of your business can highlight areas for improvement. You can also find opportunities you might otherwise miss.
If you’re struggling with some of these common bookkeeping problems, we’ll be happy to give you some advice. Just give us a call.
Share this post: