Bookkeeping errors are easy to make.
Having to carry out the task can be the bane of even the best small business. But there are common mistakes we can all learn from.
With a little bit of care and attention, you can ensure you save time and money by avoiding these 10 common errors:
1. Trying to do it all yourself
You pay an accountant for a reason. And it’s not to just add up receipts. Whether you’ve just started 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 mobile phone.
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.
5. Failing to take full advantage of your 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.
It’s always worth reaching out to your software provider for support. And you may even find they provide training to help you get up to speed with your products.
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 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 goods or services, make sure you take if off again when measuring total revenue.
It’s a common mistake and it can give a misleading impression of how the business is performing.
8. Putting fingers in the petty cash
Petty cash isn’t free money. It’s the company’s money.
It’s necessary to buy the odd thing around the office, but avoid 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. Keeping personal and business accounts together
Lots of people set up successful businesses from their kitchen tables or garages, 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. Putting 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 simpler to use accessible on mobile phones and tablets via the cloud, keeping the books up to date just got a lot easier.
Editor’s note: This article was first published in August 2018 and has been updated for relevance.
Small business toolkit
Get your free guide, business plan template and cash flow forecast template to help you boss your business and achieve your goals.
Recommended Next Read
Basis period reform and Making Tax Digital: How accountants can help their clients
Never miss an episode
Subscribe by email and get Sound Advice delivered to your inbox every two weeks with the Sage Advice newsletter with a ton of related articles, templates and problem solving guides for small businesses so you can put our sound advice into practice.