Are you a small business owner, wondering where you might be going wrong with your bookkeeping? Or are you just starting out on your bookkeeping journey and want to ensure you are doing the right thing? If you find yourself facing these challenges, you're not alone. When you’re focused on running the day-to-day operations of your business, bookkeeping can seem a daunting task.
We understand the struggles sole traders, start-ups and small businesses face keeping their finances in order and want to share with you some of the common mistakes made and tips on how to avoid them.
Here are the top 5 Bookkeeping mistakes:
1. Neglecting to Separate Personal and Business Finances
One of the most common mistakes made by small business owners is keeping personal and business finances combined. This often leads to confusion, inaccuracies and can cause problems when it comes to filing accounts.
A simple solution to this problem is to open a separate business bank account, which will make it easier to keep track of your business transactions. By maintaining a clear distinction between personal and business finances you’ll make it easier to track your business transactions, leading to more accurate and organised accounts.
2. Failing to Keep Track of Receipts and Expenses
We've all experienced it at least once – making a purchase, requesting a receipt, tucking it away in our pocket, purse, or bag, only to forget about it and eventually throw it away. Yet those little pieces of paper are crucial for accurately recording transactions and claiming tax deductions.
The great thing is that HMRC accepts scanned copies of receipts. The solution to this problem is the Snap & Go method – simply download the app of the bookkeeping software you use to snap a photo of your receipt on the go. You can even extract essential information from the receipt right then and there, saving you valuable time when you sit down to do your bookkeeping.
3. Inconsistent Recording of Transactions
For some small business owners, time is a scarce resource, and understandably, bookkeeping may not be at the top of their to-do list, resulting in sporadic efforts. Unfortunately, this inconsistency can lead to a variety of issues such as missing transactions, duplicate payments, and inaccurate recording of transactions, all of which require even more time to fix.
To avoid finding yourself in this situation, we recommend you maintain consistency by setting weekly, monthly, and yearly tasks to update your financial records. Don’t leave it all to the last minute! By dedicating some time regularly to your bookkeeping, you’ll gain more control over your financial management process. To further streamline the process and reduce manual data entry, consider switching to online bookkeeping software (i.e. QuickBooks and Xero), which can automate repetitive tasks and link up with your bank to import transactions, saving you time
4. Lack of Reconciliation between Bank Statements and Financial Records
Are you unsure about your current financial status? One of the common mistakes is leaving bank reconciliation until the year-end, but this process is vital for identifying discrepancies.
To stay on top of your finances, we recommend reconciling your bank statements with your accounts every month. Using online bookkeeping software simplifies this process, making it easier to track and match transactions accurately.
5. Overlooking Deadlines and Compliance
Staying ahead of HMRC and Companies House deadlines can be challenging, and the consequences of late submissions can result in hefty penalties and unwanted stress.
One effective way to lift this burden is by outsourcing some of your bookkeeping and tax-related tasks. Having experts to guide you ensures accurate and timely filings, allowing you to navigate the complexities of financial compliance with ease.
By implementing some best practices and avoiding these bookkeeping mistakes you’ll be able to better manage your business’s finances. And remember, you don’t have to go it alone. We’ve worked with many business owners like yourself, and we're here to help you with training, advice or as your trusted accountant.
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