Over the years, we have worked with a huge range of small businesses from all different industries and backgrounds. Working with so many small businesses has given us a real insight of mistakes business owners are making with their accounting and bookkeeping.
Here’s some of the most common accounting mistakes made by small businesses that we see regularly:
Not keeping proper records
This is one of the biggest mistakes that small business owners make. Without accurate and up-to-date records, it is impossible to track your income and expenses, which can make it difficult to file your tax returns correctly, make informed financial decisions, and be approved for any potential business loans.
You should make sure that as a minimum you keep copies of all sales and purchase invoices and receipts.
Not using an appropriate book-keeping system
A good book-keeping system can help you track your income and expenses. There are many different options available, so you can choose one that fits your needs and budget.
There are free apps that offer accounting software solutions for smaller business as well as an option to keep electronic copies of sales and purchase invoices and receipts, and some business bank accounts have free or reduced-price software attached.
A simple spreadsheet can work as a book-keeping system if used correctly.
Mixing personal and business finances
As a sole trader there is no legal requirement to keep a separate bank account for business, however you should check the terms and conditions of your bank account to make sure that using it for business income is not prohibited.
Mixing personal and business transactions in a single account can of course make it more difficult to identify business costs and income at a later date.
If you are selected by HMRC for an enquiry – a check into your accounts and your tax return – you may be required to hand over your bank account statements so may prefer not to have private transactions included.
Not tracking expenses
Even small expenses can add up over time. It is important to track all of your expenses, so you can see where your money is going. Not only will help this you identify areas where you may be able to cut back, but it can also save you money on your tax bill!
If you use your own car for business purposes then logging your business mileage is essential. You can claim a tax deduction of 45 pence per mile but HMRC will expect you to keep a record to support this deduction.
Not considering all allowable expenditure
There are many items of expenditure that can be taken into account when calculating your profits so make sure to include all of these. If you are not sure, ask your accountant.
Not planning for tax liabilities or deadlines
Late filing of Returns, or payment of liabilities, such as for self-assessment or VAT can have serious consequences including penalties and interest charges.
Always make sure you are aware of the filing deadlines throughout the year, and make sure you provide your records to your accountant with plenty of time to spare.
Make sure to check payment deadlines as well, especially if you are required to make payments on account.
If you would like some information or guidance regarding any of the above points, from accounting software choices, to spreadsheet templates and details of types of allowable expenses, please let me know.
Book a call with Kathryn today.
