The bookkeeping mistakes holding back small business
How do enterprises become lost in paperwork?
Whether you are starting a new company or have been trading for a couple of years, keeping on top of the accounts is vital to success, yet, this is one task where business owners often struggle and make some potentially costly mistakes.
With any small business, the priority is getting up and running and bringing in revenue as soon as possible. Menial tasks such as bookkeeping are put to one side to be dealt with later when there is more time, only that time never seems to materialise.
As the days and weeks go by, a backlog builds and the prospect of tackling it becomes increasingly stressful. To keep a backlog at bay, do a little every day. Ideally, set up a bookkeeping system before the business begins trading and plan a schedule. Daily bookkeeping tasks might include filing of expense receipts, bank statements and invoices.
Once a week find an hour that isn’t crucial to sales or production to log these into the bookkeeping system. By keeping on top of the work, the time spent on bookkeeping is kept to a minimum.
2 Mixing business and personal finances
Another frequent mistake made by those new to business ownership is using their personal bank account for business transactions. It might save on costs and paperwork - everything appears on one bank statement - but mixing business and personal finances also complicates things, especially when it comes to completing a tax return.
Legitimate business expenses can be offset against tax, but personal ones cannot, and separating the two in a single bank account can be messy and time consuming. Setting up a bank account for the business keeps everything clear and simple and helps the business avoid trouble with the taxman.
3 Losing business receipts
They can be fiddly to store and easily lost, but till receipts for business expenses must be safely filed, as HMRC will want to see proof of all business expenditure, from paper clips to petrol. Missing receipts can cost the business money.
Even when they are only for small items, over the year they add up, and failing to account for certain expenses can mean paying more tax than you need to. Having a good filing system will also save time when it comes to working out annual business costs.
4 Failing to do bank reconciliations
A key part of the bookkeeping process is comparing the business bank statement with the business accounting records and ensuring that everything matches up, yet many new business owners are not aware of this. Bank reconciliation is an effective way of identifying errors, and for those with employees spotting signs of fraud, when the two sets of data do not tally.
5 Keeping a manual set of books
Manual bookkeeping is laborious, time-consuming and prone to errors, and in the digital age, no longer the only option. There are various software options available, from the simplest of spreadsheets, such as Excel, to more sophisticated and specialist bookkeeping packages. At the very least they will do the number crunching and can save time on what is a necessary but non-revenue earning task.
For those who are unsure about using software to record their business accounts there are plenty of online resources; reviews, guides and training courses to take them through the basics. And if keeping on top of the bookkeeping really does impinge on the day to day running of the business, paying an accountant to do it could be a worthwhile investment.