Even though it’s important to make sure your financial records are accurate, it’s not often the most exciting part of working for yourself.
It’s easy to focus on the more enjoyable aspects of running your business, but pushing bookkeeping to the back of your mind – and letting the documents pile up – really can cause you issues down the line.
Good bookkeeping and accurate records are vital to making sure your business is in the best health it can be. So take a look at our full list of the mistakes to avoid below and see if there’s anywhere you can improve.
Putting bookkeeping off is one of the biggest – and easiest – mistakes you can make.
We all have those tasks we need to do but leave until tomorrow, then the next day and the next. With bookkeeping, though, the workload piles up and it can quickly get to the point where you don’t have the time or energy to catch up.
Even just spending a little time each day on your books means you’ll stay on top, and develop a better understanding of your day-to-day accounts. This lets you spot potential problems (like consistently late payers) early. It also helps you stay on top of your financial deadlines.
If you have somebody else who does your books, spend some time each week getting your records and receipts organised to make life easier for them.
While those starting out might find it easier to mix personal and business spending, it costs time and money in the long run.
This is because you have to sift through the account to find your business transactions. It’s worse if you ask a bookkeeper or accountant to do this for you, because you’re paying for their time.
When it comes to your tax return, keeping your transactions separate helps to minimise errors. With all the right income and costs in your accounting, you should end up paying the right amount of tax.
You want your accountant to use their time well, and keeping your books up to date and in good shape frees them to spend time on what they do best.
They have more time to give you advice, which should help you run your business effectively.
If you haven’t got an accountant but are thinking about hiring one, do your research and go with one that’s got a good reputation. A good accountant, while expensive, can be worth it in the long run.
Expect to pay £200 for an accountant to help fill in your tax return, but their knowledge on tax and what you can claim on expenses could go some way in reducing your overall tax liability. They can also help you set up a good bookkeeping system and advise on how to keep records.
Whether it’s bad filing or not keeping hold of your receipts, if you don’t have a system for keeping track of your expenses and cash flow, you won’t have your eye on the health of your business. You should keep and record receipts for the smallest of things, even the coffee you buy clients at a last-minute meeting.
If you’re claiming back business expenses to keep your tax liability low, HMRC may ask for evidence of your receipts. Keeping good records will help you account for everything and avoid any disputes.
Plus, you should be recording and numbering your invoices and making sure they’re all in sequential order. Have a system for bills to make sure you’re paying them on time.
Many people now choose to use cloud-based software. Such software can scan your receipts, input information about your cash flow and even generate invoices – you can check out a comparison of some of the popular apps here. Software is also a great way to keep your records backed up.
A good start when it comes to keeping good records is making sure you pay using your card or electronic transfer. This is because your bank records the date, amount and the recipient’s name – saving you time from entering this information into a spreadsheet.
While bookkeeping might seem too much like a distraction from your day-to-day work, it’s not something you can do while distracted.
This is especially true if you work from home, where family or flatmates can easily pull you away from the task at hand.
Set aside a specific time to work on your books, preferably in a room where you know you can’t be distracted. It should help you get your work done quicker, with fewer mistakes made along the way.
If you’re not doing this each month, it’ll cause headaches for you down the line. Reconciling your accounting system with your financial accounts is essential, making sure your own record of your income and expenditure matches up with your financial statements.
If you don’t do this at least once a month, it’ll be harder to account for any discrepancies or weaknesses in your process. Doing this regularly makes it much easier for you to see how your business is doing and lets you make improvements if necessary.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
24 September 2020 • 4-minute read
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