Bookkeeping mistakes made by small businesses
There are many common mistakes that small businesses are guilty of when it comes to bookkeeping. While it may not be the most enjoyable part of the job, bookkeeping is at the centre of small business success. By spending a time on a regular basis keeping up to date with your accounts, you can save both time and money in the long run. So, here’s a rundown of the most common bookkeeping mistakes made by small businesses.
1. Not saving your receipts
Business owners are often guilty of throwing away receipts for small amounts of money. It is important that you keep ALL of your receipts no matter how big or small the amount to ensure all of your spending is accounted for with evidence. Should your business ever be audited, you will need to provide all documentation. We recommend using digital method of storing and sharing receipts. XERO has functionality to allow you take a picture of your receipts as soon as you get them and upload them to your system in real time. This makes processing transactions and identifying costs much easier for your bookkeeper. It also means all your information is in one place when it comes time to do your end of year accounts and tax return.
2. Not taking petty cash seriously
It is common that many small businesses operate with petty cash, however they often don’t have a proper system in place to manage it. This can often lead to mistakes being made, especially if you have multiple people who have access to it. A system should be put into place to track the amount of money kept as petty cash and how it is spent, with appropriate receipts kept and filed safely. If you are using an accounting software, you can set up a petty cash account, like you would any regular bank account, and reconcile it on a regular basis.
3. Failure to back up your data
All copies of receipts, invoicing, bank statements etc should be ordered and stored in a safe place, either physically or digitally. Your accounting and payroll should be backed up daily if it is not a cloud based solution. Using the cloud is a great way of taking the stress out of storing and saving your data. It also provides continuity in how you access your data, if for some reason you could not access your place of business or you had issues with your computer hardware.
4. Taking it all on yourself
Sometimes, as a small business owner you need to swallow your pride and admit that you just simply can’t do everything yourself. In fact, trying to do so can often be more damaging to both yourself and your company, as a lack of time and understanding can mean silly mistakes are made. Outsourcing your accounting will provide you with access to someone who can offer advice regarding how to most effectively manage your records and accounts, which will prove to be invaluable, whilst also providing peace of mind that your finances are under control.
5. Failure to reconcile books with bank accounts
Reconciling is simply the process of making sure that the balance listed on your books is correct, and then ensuring that is marries up with your bank balance. Incoming and outgoings can be missed when multiple people are involved in the operations of your business. Reconciling your accounts enables you to spot these errors and rectify them in a timely manner. Having a reliable accounting package can assist with this, as you can directly feed to your bank account in some cases so unrecorded items are easily spotted.
6. Not separating your personal and business accounts
This is an error that can lead to a lot of confusion and its one of the first changes we ask a business to make. As many successful businesses are set up and run from people’s homes, the line between personal and business can become blurred. Keeping all of your money in one place can make this very complicated, especially when it comes time to file your end of year accounts and tax return.
By keeping separate bank accounts for business and personal use, you can easily identify incomings and outgoings related to your trade and reduce the risk of under or overclaiming on business expenses.