7 common bookkeeping mistakes and how to avoid them
Bookkeeping can seem like a tedious and mundane task for many business owners, which is why it’s common for many to make mistakes with their bookkeeping. In fact, over half of all small business owners fail to keep their finances up to date every month. With this in mind, here are some of the most common bookkeeping mistakes to avoid.
1. Poor record-keeping
When you’re a small business, every penny counts. Forgetting about small expenses can cause havoc with your bookkeeping. It’s important to maintain accurate records month-on-month, no matter how small or insignificant your expenses might seem to you. Keeping your bookkeeping up to date can also provide you with useful financial statements. These give you a snapshot of where your company is at and can play a big part in business planning going forward. If you are unsure how to interpret your financial statements, speak with an accountant who can help.
2. Failing to back up your data
If you keep manual records using Excel or Google Sheets, it’s important to back your data up daily. Not only to your own computer but also to a server or external hard drive. It’s also important to back up your data if you keep your records digitally using online accounting software. Most online accounting software (including Xero) will back up your data automatically every 24 hours, but always check with your software provider to ensure it is backed up at least once a day, ideally to several safe and secure locations.
3. Not tracking reimbursable expenses
If you pay expenses out of your personal funds, it’s easy for these expenses to be overlooked and go unrecorded. It might sound like an obvious one, but many small businesses forget about these expenses over time, resulting in lost money and missed tax deduction opportunities. Organisation is key when it comes to your bookkeeping, so why not create a company policy regarding reimbursable expenses?
4. Throwing away your receipts
If you lose your receipts, you won’t be able to work out any tax reductions. Again, this might sound obvious, but you’d be surprised at how many business owners fail to keep their receipts in a suitable place or keep a record of them. It’s fine to keep digital records of your receipts (you could even take a picture of them and store them on your computer) and you should keep them for at least six years.
5. Spending too much time on bookkeeping
When you’re a small business, there’s a risk you can spend too much time on your bookkeeping when instead, you could be spending that time productively elsewhere. This could be improving your existing business offering or working on a business growth plan. If this is something you can relate to, it might be time to hire an accountant to carry out your bookkeeping for you.
6. Failing to put money aside for VAT
If you’re a VAT registered company, you’ll send invoices with VAT included. This money should not be spent or reinvested. Your business should always set aside VAT to be paid to HMRC. Usually, VAT registered businesses submit VAT returns and payments to HMRC quarterly. Charges for not doing this can be up to 15% of the unpaid VAT.
7. Not requesting a VAT receipt
As well as paying VAT on sales, you also need to keep invoices and receipts from purchases made by your company where VAT has been charged. This will help you reclaim the VAT element back.
In order to do this, a valid VAT receipt or invoice is required. Always check that you have received one – if not request one (for some items under £25, VAT can be claimed back without the need for paperwork). There are specific rules and regulations on claiming VAT back and you may wish to take advice on this from an expert accountant.
How Alexander & Co can help
If your business is wasting endless hours on bookkeeping tasks, falling victim to the common bookkeeping mistakes we’ve just mentioned, then our accountants can help. We understand how frantic it can be juggling your business and your bookkeeping that’s why we offer bookkeeping services to handle everything. This way, you can spend less time on your accounts, freeing up time to maintain and grow your business.
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