From one wo/man bands to larger companies, bookkeeping is a significant part of any business. While it isn’t typically one of the more glamorous jobs, bookkeeping is at the heart of any company’s success, and a bookkeeping mistake can cost dearly.
As a professional bookkeeper, these are some of the most common errors that I regularly see and which I cover when training SME owners to set up and manage their bookkeeping correctly.
Taking some training with a professional bookkeeper, preferably from the start, can help you improve your bookkeeping system and your business.
Bookkeeping Mistake 1. Combining personal and business finances
A lot of business owners forget to separate their personal finances from the business ones. When they are inputting their expenses, they might come across a meal receipt which they paid for on the company credit card because they couldn’t find their personal credit card or they didn’t have any money in their bank account.
This can also happen the other way around – a business owner could pay for a business expense on their personal credit card and forget to put the expense in for reimbursement.
The problem with mixing up your personal and business finances is:
- You could be missing out on tax relief from business receipts which are tax-deductible
- If you put through some personal receipts as business expenses, this could potentially result in a fine from HMRC.
Bookkeeping Mistake 2. Not performing reconciliation
A lot of businesses owners ask what a reconciliation is. They have no idea they need to compare their business books with their bank statement and make sure there are no discrepancies.
You should reconcile your business books with your bank statements as often as possible, at least once a month, to:
- Keep track of all income and expenses going through your bank and ensure that they match your business books.
- Highlight weaknesses in your processes that need to be addressed
- To avoid and/or detect any fraudulent activity
Bookkeeping Mistake 3. Not keeping receipts for small purchases
Many business owners don’t see the point in keeping receipts for small expenses, such as parking and business travel etc. because they will just clutter the office and they assume HMRC doesn’t need to see every little expense.
This is wrong – if you are inspected, then HMRC will want to see receipts for everything you have put through your business as an expense and if you don’t have this they can state that it is not a tax-deductible expense because you have no evidence to back it up. If this happens, you could incur penalties and fines.
Free apps such as MyBizTracker make it easy to track your expenses on the move.
Bookkeeping Mistake 4: Using manual accounting systems
There are many opportunities to make errors when using a manual accounting system such as spreadsheets. Even a small mistake could cause you a number of problems further down the line. With accounting software you will avoid errors such as:
- Posting a sale to the wrong customer account
- Incorrect dates, e.g. 30th February will not be accepted in a computerised system.
- VAT mistakes
There are many benefits to using accounting software such as QuickBooks, compared with a manual accounting system:
- Save time
- Produce reports in seconds
- It’s much more accurate than a manual system
- Save money on your accountant’s bills
Online accounting software like QuickBooks Online and free apps like QuickBooks Mobile are also brilliant for business that are out and about all the time and need to access their accounts on the move.
[Image courtesy of adamr/ FreeDigitalPhotos.net]