Errors are easy to make in bookkeeping. With a little bit of care and attention, small businesses can save time and money by avoiding these 10 common mistakes.
Bookkeeping can be the bane of even the best small business. But there are common mistakes we can all learn from. Here are 10 of the worst…
1. Trying to do it all yourself
You pay an accountant for a reason. And it’s not to sit there adding up receipts. Whether you’ve just set up a business, or are looking to grow, your accountant can offer invaluable advice on how best to keep records and maintain accounts. If your books are well ordered and up to date, they’ll have time for a discussion as well as filing your mandatory tax return.
2. Not saving receipts for small amounts
They may not be required by law, but receipts for small amounts can provide backup for the many tax deductions you aim to claim. Keep an ordered folder of such receipts, or better still, use accounting software to scan them. With the right app you can even photograph and store them using a smartphone. They may also help keep track of what you’re spending.
3. Not communicating properly
Maybe more than one person in the business works on the books. Perhaps admin support helps out for a couple of days a week, but you make the big decisions yourself. The simplest things can be misunderstood, so make sure you keep written, chronological notes of discussions you have and check you both have the same understanding of the processes you put in place.
4. Failing to reconcile the books with the bank statement each month
The foundation of good bookkeeping is making sure the books marry with the bank statement at least every month. The more often you do it, the sooner you will pick up errors, either in-house or by the bank, and the more time you’ll have to rectify them. Electronic banking makes it easier, particularly now it can be integrated with online accounting software. Which brings us to…
5. Failing to take full advantage of bookkeeping software
If you use software from a reputable firm with years of experience in the market, the system will be designed to replicate best practice and help you operate efficiently within the law. The best software is easy to use, but do invest time in reading the manual or doing a little online training. It could save you hours of head-scratching down the line and could prevent costly mistakes creeping in.
6. Not backing up files and records
Many records will still be kept on paper. They should be well ordered and safe. But they can also be replicated or scanned into software, which can be backed up, on disk on site as well as in the cloud. If your office computers are unexpectedly damaged, the cloud version of your records will help you get back up and running fast.
7. Failing to account for sales tax (VAT)
If you work in retail or need to add sales tax (VAT) on to the price of good or services, then do make sure you take if off again when measuring total revenue. It’s a naïve but all too common mistake, and it can give a misleading impression of how the business is performing.
8. Fingers in the petty cash
Petty cash isn’t free money. It’s the business’s money. OK, it’s necessary to buy the odd thing around the office, but don’t set a bad precedent by dipping into it for more extravagant items. They will soon add up and are unlikely to be properly accounted for. Plus, if different people are buying the same items again and again from petty cash, it might be better to group together the spending and get a better price.
9. Keep personal and business accounts separate
Lots of people set up successful businesses from their kitchen or garage, but you need to draw a line between business and personal accounts. To be tax efficient, you’ll need to claim all of the legitimate business expenses you can think of. But this doesn’t extend to a few beers with friends after work. Mixing the two accounts can add to confusion.
10. Don’t put off bookkeeping
It’s human nature to put off the boring tasks in life – and bookkeeping is chief among them. But the longer you leave it, the worse it will get.
Not only that, your accounting will become increasingly out of date, meaning you aren’t keeping track of performance. If something is going wrong you won’t know about it, maybe until it’s too late.
Proactive accounting helps solve problems before they occur, but you can only do it if you’re on top of the books. Now the software is easier to use, and in some cases accessible on smartphones and tablets via the cloud, there’s little excuse for failing to keep them current.
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