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The top five accounting mistakes made by small businesses

Learning bad habits with your business accounting is a downward spiral that can cost you time and money as well as making managing your busines

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The top five accounting mistakes made by small businesses
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Learning bad habits with your business accounting is a downward spiral that can cost you time and money as well as making managing your business finances unnecessarily complicated. Here are some common accounting mistakes and how to avoid them.

# 1 – Leave it too long

Accounting is not the best of business tasks. There is always something more fun to do, such as marketing, building your network of customers or even just making coffee. But it will not go away, and HMRC can fine you for not keeping accurate records for your business. And the longer you leave it, the harder it gets to get through all that paperwork.

Set aside an hour a week to do your books so that you always have timely, accurate information about your business’ profit and cash, and so that accounting never becomes too huge a task.

> See also: Five Ways to Clean Up Your Business Books

# 2 – Garbage in, garbage out

Make sure you do your accounting accurately, otherwise you do not have a hope of having any useful information about your business – and also your accountant’s account will be much higher due to the extra effort they have to spend to get the mess up too spacious.

You may think you have a great way of collecting your finances, but are you sure you are categorizing all your expenses properly? Is your system more outdated and confusing than it should be? Or you may have entered your invoices and accounts incorrectly, causing your accountant headaches because they need to clear the data for you.

Make sure you use a simple, robust system that makes it easy for you to enter all your data accurately and efficiently, and make sure you do not make any changes to the way you record your figures from month to month. This way, your accountant can easily check the figures for any accounting errors.

Also remember that if your business has to comply with Making Tax Digital (MTD) rules, you will have to keep your books digital and not have any manual data rewriting, so handwritten cash books will be out, and any spreadsheets you will need to use can talk seamlessly with each other and with HMRC’s systems.

# 3 – Be consistent

If you have transactions in your business that recur frequently, such as a monthly subscription, make sure you put them in the same category every time, otherwise when your accountant comes to see if you have entered all your costs and claimed the maximum allowable amount. for tax, they will have to spend extra time finding those costs that went into different places – which in turn means a higher bill for you.

For example, if you subscribe to an accounting SaaS package, it should not classify computer consumables one month and subscriptions the next. Stick to one cost category to avoid unnecessary confusion and accounting errors and make it easier to record that subscription when you enter your bank details into your accounts.

> See also: Navigate business expenses as a limited company

# 4 – Overcomplication

There may well be areas of your bookkeeping software that are not relevant to your business; for example, not every business needs to issue invoices. This is absolutely fine. Don’t waste time by posting entries you do not need.

Another example might be if you do not take time to pay a provider, you do not have to place an account in your account system. If you pay on the nail, you can record that transaction rather than a payment from the bank.

# 5 – Too much manual effort

You also do not have to manually place every single transaction.

Use expense management software like Dext or FreeAgent’s own mobile application to photograph your moving expenses and upload them automatically to your accounts, saving you the hassle of keeping track of your receipts.

And why waste time downloading and uploading bank statements? See if the online accounting system you use has bank feeds available for your bank, as this will allow you to automatically withdraw your bank data into your accounts.

Accounting will never be the most exciting task in your business, but it does not have to be the worst either.

Emily Coltman FCA is Chief Accountant of the accounting software company FreeAgent

Further reading

Five small business taxes you need to know

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