One of the most important parts of keeping your business healthy is keeping a good financial record.
It is often discovered that small business owners who take care of their accounting personally can make mistakes. It really is an investment to have a professional Accountant like ourselves, who can take care of your Accounting giving you more time to concentrate on your business. However, if you are just starting out, you may not be ready to shell out the money for a professional Accountant. In that case, beware of the following eleven accounting mistakes small businesses can, and frequently do, make.
1. Not saving receipts
These provide backup documentation for the many deductions you may claim. We suggest always saving receipts. HMRC will accept good quality pdf copies and we can provide software to use in making and keeping copies. This can be extremely cost effective, quick and easy.
2. Doing it yourself
Many business owners insist on handling their finances and keeping their books themselves, there is nothing wrong with this. However, employing a competent bookkeeper can be extremely beneficial in that they have the skills to do the job quickly and efficiently they will also provide a second pair of eyes to find errors and make suggestions. Doing it yourself is not necessarily the best use of your time. if it takes you an hour to do what a specialist can do in 30 minutes, could you spend that hour earning enough to pay the specialist – and make a profit!
3. Forgetting to track reimbursable expenses
Don’t make the mistake of failing to submit these expenses, as small business owners often pay for these out of their own pocket or personal credit card. It is easy to forget that you bought something personally. If you buy anything, make a note as soon as possible – even if you forgot to get a receipt.
4. Not properly classifying employees and subcontractors
This could result in problems with HMRC and employment tribunals. Be clear whether someone working for you is employed or is working as a subcontractor. Ensure there is no confusion and you follow the rules and guidance. Don’t forget to check a potential employee’s right to work in the UK as getting this wrong can result in a £20,000 penalty.
5. Lack of communications
Employing us to handle your bookkeeping means we are up to date on all financial transactions. A frequent mistake is paying someone cash and not reporting it or buying supplies and not providing us with all the information and receipts. Also, receiving payment and not reporting it is treated very seriously by HMRC if they ever find out.
6 Not reconciling the books with the bank statement each month
Here at Central Business Services we reconcile the books and bank statements every month. Nonetheless, there are businesses out there that do not do this, and errors are made by not doing it correctly. Again, this another valid reason for hiring an experienced bookkeeper.
7 Not backing up online data with proof
A paper trail, documentation or verification in the form of backup documents should be available. Especially if all files are on the computer, which could be prone to technical problems. Cloud storage is available pretty cheaply – use it, just in case.
8 Not deducting VAT
This is a common mistake in retail businesses where VAT is not deducted from the total sales. This results in higher total sales amount and increases the amount of tax due.
9 Carelessness with petty cash
A system should be set up whereby a set amount of money is in petty cash and each time money is taken out it is recorded. When the funds are exhausted, the record that you have kept will total the original amount. Most offices are nonchalant about using the petty cash fund without keeping an accurate record. We have seen petty cash balances which are many hundreds of £££s adrift. Not only does this mean that full expenses aren’t claimed but HMRC can view a mismanaged petty cash float as indicative of mismanagement elsewhere.
10 Mis categorisation or over categorisation
There are standard categories for expenses. However, often expenses are entered in to the wrong category or too many categories are created. Use general bookkeeping guidelines for standard categories. Try to follow generally accepted accounting practices.
This is probably the single biggest cause of small business failure. You haven’t really made a profit until the money is in your bank. It is better to work for a customer who will pay you on time rather than work for promises of higher pay. A bird in the hand is definitely worth two in the bush. Ensure you understand the payment arrangements and if payment isn’t received on time, consider very carefully whether you should continue to work.