Getting into bad habits with your business bookkeeping is a downward spiral that could cost you time and money, as well as make dealing with your business finances unnecessarily complicated. Here’s some common accountancy errors and how to avoid them.
#1 – Leaving it too long
Bookkeeping isn’t the most enjoyable of business tasks. There’s always something more fun to do, like marketing, building your network of customers or even just making coffee. But it won’t go away, and HMRC can fine you for not keeping accurate records for your business. And the longer you leave it, the harder it becomes 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’s profit and cash, and so that bookkeeping never becomes too gargantuan a task.
>See also: Five ways to spring clean your business books
#2 – Garbage in, garbage out
Make sure you do your bookkeeping accurately, otherwise you don’t have a hope of having any useful information about your business – and also your accountant’s bill will be much higher because of the extra effort they have to spend to unjumble the mess.
You may think you have a great way of collating your finances, but are you sure you categorise all of your expenses properly? Is your system more outdated and confusing than it needs to be? Or perhaps you’ve been inputting your invoices and bills incorrectly and giving your accountant a headache because they have to tidy the data up for you.
Make sure you’re using a simple, robust system which makes it easy for you to input all of your data accurately and efficiently, and make sure you don’t make any changes in the way you log your figures from month to month. That way your accountant can easily check the figures for any accountancy errors.
Remember too, that if your business has to comply with Making Tax Digital (MTD) rules, you will have to keep your books digitally and not have any manual re-keying of data, so handwritten cashbooks will be out, and any spreadsheets you use must be able to talk to each other and to HMRC’s systems seamlessly.
#3 – Be consistent
If you have transactions in your business that repeat regularly, such as a monthly subscription, make sure you put these in the same category each time, otherwise when your accountant comes to check that you’ve entered all your costs and claimed the maximum allowable amount for tax, they’ll have to spend extra time finding those costs that have gone into different places – which again means a higher bill for you.
For example, if you subscribe to an accounting SaaS package, don’t classify it Computer Consumables one month and Subscriptions the next. Stick to one cost category to avoid unnecessary confusion and accountancy errors and make it easier to log that subscription when importing your bank data into your accounts.
>See also: Navigating business expenses as a limited company
#4 – Over-complication
There may well be areas of your bookkeeping software that aren’t relevant to your business; for example, not every business has to issue invoices. That’s absolutely fine. Don’t waste time by posting entries you don’t need.
Another example could be if you’re not taking time to pay a supplier, you don’t have to post a bill into your accounting system. If you’re paying on the nail, you can just record that transaction as a payment from the bank instead.
#5 – Too much manual effort
You don’t have to post every single transaction manually, either.
Make use of expense management software such as Dext or FreeAgent’s own mobile app to photograph your expenses on the move and have them automatically upload into your accounts, saving you the hassle of keeping your receipts.
And why waste time downloading bank statements and uploading them? Check to see if the online accounting system you use has bank feeds available for your bank, as this will allow you to pull your bank data automatically into your accounts.
Bookkeeping will never be the most exciting task in your business, but it doesn’t have to be the worst either.
Emily Coltman FCA is chief accountant to accounting software company FreeAgent
Five small business taxes you need to know about