10 Tips for bookkeeping services in Bishop's Stortford

The top 10 bookkeeping mistakes and what to do about them

If you’ve been managing your books yourself for a little while, there’s every chance that you’ve made a few errors along the way. It happens to the best of us!

Here are the top 10 bookkeeping mistakes small business owners often make, along with some actionable steps to fix them or avoid them altogether.

1. Failing to separate business and personal finances

For self-employed individuals, mixing personal and business expenses can lead to inaccuracies in financial records and tax filings.

You should always open a dedicated business bank account and credit card, so you can keep separate records. It’s also a good idea to use accounting software like Xero or QuickBooks to monitor your business transactions exclusively, as this will make it so much easier to review and reconcile your accounts, which should be carried out at least once a month (if not more regularly, depending on the number of transactions you’re dealing with).

2. Not keeping accurate records

Poor documentation can result in missed deductions, tax issues, and difficulty managing your cash flow. All of these issues will cost you money in the long run!

The best thing to do is to establish a routine for logging your transactions daily or weekly, and store them in a cloud-based tool for ease. Keep all your receipts, invoices, and bank statements organised so you can easily locate transaction information, if you need to.

3. Neglecting regular bank reconciliations

Failing to reconcile bank statements with your records leads to undetected errors and missing funds. And the longer you leave it, often the harder it is to rectify these problems!

Reconcile your accounts at least monthly using accounting software. If you do spot any discrepancies, investigate them straightaway so they don’t hold up the process any longer.

4. Ignoring tax deadlines

Missing tax filing deadlines or underestimating tax payments can lead to penalties and interest charges. It’s your duty as a business owner to make sure you’re on top of this stuff.

Use a tax calendar to track deadlines and set reminders for quarterly estimated tax payments. If you’re really struggling to keep up with your responsibilities, work with a bookkeeper or accountant, who will help you calculate what’s due and stay accountable in terms of compliance.

Have a look at the various deadlines here.

5. Improper categorisation of expenses

Misclassifying expenses can result in inaccurate financial reporting and potential tax issues, neither of which are helpful when you’re trying to keep cash flowing and operations moving.

Use consistent categories in your accounting software. If you’re not sure what should go where, ask a bookkeeper like me for clarification. You should also periodically review your expense categories to make sure they’re accurate.

6. Overlooking accounts receivable

Forgetting to follow up on unpaid invoices results in less money in the bank, which puts unnecessary strain on your finances.

You are a little beholden to your clients’ own payment processes. However, to minimise late payments, make sure you set clear payment terms from the moment you start working with somebody new, and track your accounts receivables closely, checking in every few days to see what’s owed. You can also use invoicing software to automate payment reminders. You are perfectly entitled to implement late payment fees if you feel this is necessary. I covered this topic in more detail in my recent blog, How to make sure you get paid.

7. Failing to track cash transactions

Cash transactions are still transactions – and if they’re not recorded properly, you’ll end up with inaccurate books and potential tax issues.

Record cash payments and receipts immediately and use a petty cash log to track small transactions. Obviously, if you really want to simplify tracking, you can avoid using cash wherever possible – but I appreciate this is not always feasible for sole traders and smaller companies.

8. Not backing up your financial data

Losing financial data due to a technical issue or disaster could cripple your business, so make the most of the automated backups that can be found in most popular cloud-based accounting software.

For extra peace of mind, you can regularly back up your data to secure external drives, too.

9. Failing to review your financial reports

Not having a good handle on your financial reports can lead to missed opportunities and poor decision-making. So, you need to regularly review your profit and loss statements, cash flow statements, and balance sheets to gain an accurate insight into your company’s finances in real-time.

You can use software dashboards to monitor your financial health at a glance. For a more in-depth look at what’s going on, I’d recommend scheduling periodic reviews with your accountant or financial advisor.

10. Doing it all yourself

I know there’s a case for keeping your bookkeeping and accounting tasks in-house. But if you keep making mistakes, missing red flags and/or costing yourself money in fines, you will actually end up losing more money in the long run.

At the very least, you should be using online software to take the hassle out of managing your books. It does have its limitations, but it’s designed to pre-empt issues and remind you to look at the key elements of your finances on a regular basis.

If you want to, you could invest in training to help you learn basic bookkeeping principles – but let’s be honest, do you really have time for this, on top of everything else? The easiest (and often most cost-efficient way) to avoid all the above bookkeeping mistakes is to hire a professional bookkeeper!

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