For the majority of small business owners, bookkeeping isn’t their favourite task. Not only can it be heavily time-consuming but it can also be tedious having to file all those receipts and expenses from the financial year at once. Unfortunately, it’s an unavoidable task that is exceptionally crucial to your business.
Due to the dullness of the task, it’s easy for mistakes to creep in. Occasionally, these mistakes can have detrimental consequences on your business. Whether that’s paying too much tax, being charged for late submissions or even missing payments, these will all cost your business more than it should and are easily avoidable mistakes.
Here are five of the most common business bookkeeping mistakes and what you can do to avoid them.
1. Poor Record Keeping
A lot of businesses are guilty of not keeping a proper track of their receipts and expenses. It's easy to misplace receipts or forget about those little expenses that you feel won’t matter in the long run. As a result of this, your books won’t match what you’ve provided and spent. This will then directly affect the amount of tax you’re due to pay at the end of the year which will lead to an inaccurate judgement of where your finances are at.
To combat this, more frequent record updating is required. We advise that you update your books on a monthly basis. That way, you’re not trying to rack your brains for that lunch you put on the company credit card from months ago. Having a proper system in place from month-to-month will save you time and money in the long run.
2. Not Having Separate Bank Accounts
Trying to operate your business with the same bank account for personal and business activities only end up with one outcome - problems.
It can be hard to distinguish between personal and business transactions, therefore things can easily slip through the net and get missed. Having separate accounts lets you clearly see where the transactions belong and allow you to spot errors and potential issues early.
3. Not Backing Up Your Records
With the Making Tax Digital (MTD) plan coming into play in April 2019, we’re going to put even more reliance on technology. Should any technical issues arise and you end up losing your records, or you’re unable to access them for a while, you need a backup to rely on.
That's why it's good practice to backup your systems regularly. You don’t lose any potential work and you can continue working as normal if you face any issues.
4. Poor Organisation
Organisation and a proper filing system are basic best practices of formal bookkeeping. Without strict organisation, how can you expect to stay on top of your books? You can’t. Accurately tracking income and outgoings by categorising them ensures that you’re always in the best position to have a firm grip on your financial position.
Also, it means that you can have an accurate representation of whether your business is on track or problems need addressing. A proper filing system that’s neat and tidy is so simple to put in place.
The main issue, though, is laziness and not sticking to it. Make sure that you persevere with it and don’t file things all over the place. That way, you won’t lose or misplace anything of importance.
5. Not Using the Right Software
Bookkeeping software is there to make your life easier, but you need to make sure you’re using the right one. Naturally, a lot of businesses use price as a deciding factor, but just because the software is mega expensive doesn’t mean it’s going to be the right one for your business. Nor is the cheap option that can save you money the one you should opt for.
Many app-based bookkeeping software packages offer different price tiers which allow you to customise your subscription with the features that you’re going to need the most. This means that you can choose just the features that you need.
We recommend that you shop around for the right software. After all, you’re going to be putting a lot of trust into this software to accurately handle the finances of your business, so you need it to be right. Check reviews, take advantage of free trials and talk to the providers before committing yourself to anything.
Prepare Your Business for the Introduction of Making Tax Digital
In April 2019, HMRC is rolling out a change in the taxation process. This plan will take everything online, so you need to make sure that your business is ready for the switch when it comes to implementing it.
Don’t worry if you’re not sure on how you can prepare your business, or even know the full details of the plan. We’ve put together a free summary sheet so that you can be fully in the know when the time comes around to make the change.
Download it below.