Developing bad habits with your business bookkeeping is a slippery slope that may cost you time and money while also making managing your accounts more difficult. Here are some of the most common accounting mistakes and how to avoid them.
1 – Waiting too long.
Bookkeeping isn’t the most pleasurable aspect of running a business. There’s always something more enjoyable to do, such as marketing, expanding your consumer base, or brewing coffee. But it’s not going away, and HMRC can fine you if you don’t keep proper company records. And the longer you wait, the more difficult it will be to get through all the paperwork.
Set out an hour each week to complete your books to always have up-to-date, accurate information on your company’s earnings and cash flow so that bookkeeping doesn’t become too overwhelming.
2 – Trash in, trash out
Make sure you perform your bookkeeping correctly, or you won’t be able to get any relevant information about your company – and your accountant’s cost will be significantly higher due to the extra time and effort required to untangle the mess.
You may believe you have a wonderful system for keeping track of your finances, but are you sure you’ve properly classified your expenses? Is your system more out-of-date and perplexing than it should be? Perhaps you’ve been inputting your invoices and bills incorrectly, causing your accountant headaches by forcing them to clean up your data.
Ensure you’re utilizing a basic, reliable system that allows you to input all of your data accurately and efficiently. You don’t modify how you track your figures from month to month. Your accountant will be able to readily review the figures for any accounting problems.
Remember that if your business must comply with Making Tax Digital (MTD) rules, you must keep your books digitally and avoid manual re-keying of data, so handwritten cashbooks are out. Any spreadsheets you use must be able to communicate with each other and with HMRC’s systems seamlessly.
3 – Maintain consistency
If you have transactions in your business that occur regularly, such as a monthly subscription, make sure you put them in the same category each time. Otherwise, when your accountant comes to check that you’ve entered all of your costs and claimed the maximum allowable amount for tax, they’ll have to spend more time looking for costs that have gone into different places, which will result in a higher bill for you.
For instance, don’t label an accounting SaaS package as Computer Consumables one month and Subscriptions the next. Stick to one expense category to avoid confusion and accounting issues and make it easy to track that subscription when importing your bank data into your accounts.
4 – Excessive complication
Some parts of your bookkeeping software don’t apply to your company; not every company needs to send invoices. That’s perfectly OK. Posting entries you don’t require is a waste of time.
Another example is that you don’t have to record a bill into your accounting system if you don’t pay a supplier on time. You can just record the transaction as a payment from the bank if you’re paying on the nail.
5 – Excessive manual labor
You also don’t have to manually post every single transaction.
Use expense management software like Text or FreeAgent’s mobile app to picture your expenses on the go and have them instantly upload into your accounts, saving you the trouble of keeping track of receipts.
Why waste time downloading and uploading bank statements? Check to see if your online accounting system offers bank feeds for your bank since this will allow you to automatically import data from your bank into your accounts.
Although bookkeeping will never be a fascinating chore in your company, it does not have to be the worst.
Emily Coltman FCA is the head accountant at FreeAgent, an accounting software startup.