5 common bookkeeping mistakes you must avoid
Day-to-day bookkeeping can be relatively straightforward so long as you avoid the most common pitfalls. Whether you are an established SME, or are first setting out, avoiding the 5 common bookkeeping mistakes below will help to keep your accounts in order at all times and ensure you stay on the right side of HMRC.
1. Using manual accounting systems
As we’ve talked about before on the 3 Wise Bears blog, it is possible to keep manual accounts records using a spreadsheet like Excel. However spreadsheets do not offer a high enough level of safeguarding against incorrect data entry and other bookkeeping mistakes.
2. Not separating business and personal accounts
Many small businesses begin as sole traders using their own bank account to handle all income and expenditure. Although this seems reasonably effective, it becomes very difficult to properly separate business and personal expenditure.
This could result in HMRC fines levied as a result of claiming business expenses incorrectly, or missing potential tax deductions. You will also find it much harder to resolve queries or disputes with HMRC.
3. Not keeping receipts
To keep your tax liability as low as possible, you will naturally want to claim as much as possible back in the form of business expenses. However, HMRC has to right to demand evidence in the form of receipts to match each purchase. If you cannot provide the required evidence for business expense claims, you could be liable for additional penalties and fines.
It is extremely important then that you keep copies of every receipt, no matter how small, to avoid costly disputes with HMRC.
4. Failing to perform reconciliation
Ensuring that your accounts system and bank/ credit card accounts tally up is an essential part of your bookkeeping routine. You need to ensure that your records of income and expenditure agree with your financial statements so that you can identify and rectify issues quickly.
Again, accounts software can help automate bank reconciliation, further reducing the potential for manual bookkeeping mistakes.
5. Trying to go it alone
Although keeping accurate records of income and expenditure is relatively straightforward, the finer points of business expenses, allowances and charges are much harder to grasp. Many small businesses make the mistake of thinking that an accountant is an unnecessary extravagance and end up paying too much tax, or being fined for mistakes, as a result.
Far better then to spend a few hundred pounds each year on securing the services of a qualified, experienced small business accountant to help your business avoid costly mistakes. Similarly an accountant will be able to provide advice regarding accounting software, account reconciliation, receipt management and multiple bank accounts.
Any one of these 5 common bookkeeping mistakes has the potential to create costs for your business – make sure you have the right advisors and the best software to help you avoid them!