It’s fair to say that the majority of small business owners don’t enjoy the mundane task of bookkeeping! However, it’s a necessity to successful manage a small business. While you may find it tedious to keep track of your receipts, payments and other essential financial paperwork, it’s an unavoidable task! If you feel like you’re not giving as much attention to managing your business bookkeeping, the chances are there’s a lot of potential to make mistakes and these can cost you both time and money. As an accountant I see this often, so in this post I’ve outlined the most common small business bookkeeping mistakes made. Do you recognise any of them?
1. Poor record keeping
Tracking your income and expenses is one of the most crucial aspects of bookkeeping. Missing out any financial transactions can really mess up your record keeping. Plus, when it comes to filing a tax return or a HMRC audit, you won’t have all the essential documentation to hand. If you’re guilty of throwing away receipts, for example, especially purchases for small amounts, start getting into the habit of saving and logging them as soon as possible. Staying on top of bookkeeping will help you see where your money is coming from and how it can be better spent on future investments and operations.
2. Mixing personal and business spending
If you’re a sole trader, then technically, you don’t need a business account but it’s certainly advisable to open a different account for your business. If you use your personal and business bank accounts interchangeably, then you’re creating a problem for your company accounts. When you do this, you can end up spending business cashflow for personal reasons, or vice versa. Additionally, transactions can slip through the net and become difficult to spot at a later date. The only way to avoid this is to ensure that you keep all transactions separate from each other so you have a accurate paper trail.
3. Not having a back-up system
Bookkeeping software has made it much easier for business owners to take the paperless route. Plus, all data is available 24/7 from anywhere in the world. However, it’s equally important to have a backup, both on paper and digitally. What if there are technical glitches, for instance? Therefore, it’s a good idea to prepare for unforeseen circumstances so you can access business data, thereby avoiding being affected by them. You also need to keep your records for 7 years in case of a HMRC investigation. Plus, HMRC are bringing in Making Tax Digital in 2024, so backing up your books will help you be prepared.
4. Not having a bookkeeping system in place
Should you use spreadsheets or cloud-based software to keep on top of your bookkeeping? Essentially, the combination of how your business operates and your own bookkeeping skills will determine which one to use. For example, while bookkeeping software is there to make life easier, there’s no point in having it if you don’t understand it! Similarly, if you don’t understand a spreadsheet, should you be using them? The best advice is to find a bookkeeping system that works best for you, and your business. Both Quickbooks and Xero are valuable tools to help you manage business bookkeeping.
Alternatively, check out my easy to use, one stop Sole Trader Bookkeeping Spreadsheet to put everything in place.
5. Making obvious errors
Almost all of us make human errors with our business numbers. For example, entering the wrong financial data into a spreadsheet or failing to report the exact sales figures. Ensuring you are organised and consistent with your bookkeeping will help to limit any errors. You shouldn’t enter fuel as a motor expense one day and a travel expense another time, for instance. On the other hand, if you tend to make the same mistake repeatedly, at least you’ve a better chance of finding it. Spend time reading financial statements and reviewing your accounts to avoid making bookkeeping errors.
6. Failing to categorise data
Do you know the difference between cashflow and profit? Fixed assets and allowable expenses? Or, knowing how to classify employees’ status? There is a great deal to think about, so if you don’t understand the basics of bookkeeping, then how can you categorise them? Subsequently, the financial health of your business will undoubtedly spiral downwards. You need to know where your business money is coming from and exactly where it’s going back out. In general, you don’t have to be an accounting expert but knowing where everything should be, is key to managing business bookkeeping.
7. Not asking for help
The choice of whether you do your own bookkeeping is a personal one, and many entrepreneurs feel they have to do everything on their own. But, when it comes to bookkeeping, if you don’t get it right, then you’re creating extra problems for yourself. Plus, wearing different hats and taking on everything yourself is incredibly time-consuming. If this sounds like you, consider outsourcing your bookkeeping to a professional to avoid missing tax deadlines or making any of these common small business bookkeeping mistakes. In addition, it’s likely to free up your time so you can concentrate on taking your business to the next level.
