5 Basic Accounting Mistakes That Could Kill Your Business

 In Small Businesses & Startups

Every business faces hundreds of challenges every year, some of which could jeopardise the very existence of the company. As you might expect, some of the most dangerous problems relate to finances – here are the top five you should be aware of, and actions to take against them, in your own business.

1. Keeping receipts

Those tiny slips of paper you get with every sales transaction have a significant cumulative effect at the end of the financial year. When it comes time to balance the books, can you clearly demonstrate what was a legitimate business purchase? Can you even remember why you spent £120 at Office World?

Your receipts are the proof of what you bought and why. If you don’t have this record, you could end up paying too much tax at year end.

2. Managing receivables

As soon as an invoice is issued, your accounts system will show a customer debt. When that invoice is paid, you must ensure that the payment is recorded in your accounts system as a receivable. In an ideal world that update would be immediate, but in reality so many other activities can get in the way. But to ensure that your accounts stay in order you must record your receivables as soon as possible.

You will find that by selecting the right accounts system, it can be attached to your bank account to perform such updates, and schedule issuing of invoices, automatically.

3. Overdue account management

When you issue invoices to customers, you should also include a due date by which you expect it to be paid. Unfortunately some of your debtors will inevitably be late clearing their accounts, during which time your business is providing them with free credit. If these overdue accounts are left unpaid for too long, your own cashflow will be seriously affected – even to the point of running out of cash reserves.

Your business must chase overdue accounts immediately to prevent such problems.

4. Keeping on top of cash

Credit card payments, direct debits and standing orders are all easy to track and record as business expenses. Cash on the other hand is much more difficult to monitor, meaning that businesses who cannot accurately track cash expenditure could quickly find themselves insolvent. Collecting and recording receipts will help your business better manage the problem of cash.

5. Managing your tax and accountancy affairs

In the same way that you wouldn’t do your own plumbing or electrics work (unless you were professionally certified in those trades), you should avoid doing your tax returns or year-end operations alone. We recommend you get assistance from a trained professional to ensure that your accounts are in order, and that you are not paying any more or less tax than you need to.

These 5 key tips should ensure you avoid the biggest business pitfalls. Obviously there may be many other potential business dangers you will encounter, but with the assistance of a good accountant, you should be able to overcome them.

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