For some business owners, bookkeeping is probably their least favourite task. Even those who are confident with bookkeeping may simply not have enough time to do it. However, it is vital that you keep on top of your accounts to prevent mistakes creeping in and money leaking out of your business.
Below are some common accounting mistakes you can avoid when doing your bookkeeping to ensure your financial records are in order and your business is on the right track:
1) Overly Generous Payment Terms
Decades ago, 30 or 60 day payment terms were the norm as it could take weeks for cheques to process and invoices to be sent back and forth in the post. However, it is no longer necessary to be so generous with payment terms today. Thanks to cloud accountancy software and email, it takes only a few seconds for an invoice to reach a client and with a variety of digital payment methods in place, it has never been faster or easier for them to pay you. Shortening payment cycles will mean the money is in your bank account faster and make it significantly easier to manage your cash flow, which is the biggest challenge facing many business owners.
2) Not Reconciling Accounts with Bank Statements
It is vital that you balance your accounts with your bank statements at least once per month. Mistakes can happen and the faster that you identify and resolve these mistakes, the better. If left unnoticed, these errors can compound over time and cause you to misunderstand your financial situation.
3) Careless Invoice Management
Failing to stay on top of invoices can create huge cash flow problems. Sending an invoice late will mean that you get paid late too. Equally, failing to send out payment reminders or chasing customers whose deadlines have passed may leave you out of pocket. It is a good idea to use cloud accounting software to automate invoice management and keep track of who has and hasn’t paid. Also, you should create a strict follow-up schedule to ensure that clients pay on time.
4) Failing to Keep Track of Business Expenses
Failing to keep track of your business expenses will see you losing out on write-offs and paying more tax than you need to. It may seem like a hassle to have to log every minor expense, but they really add up over time. It is a good idea to use cloud accounting software that connects to your business bank account and allows you to upload pictures of your receipts. This way, you can keep on organised log of your transactions without spending a lot of time doing so.
5) Not Planning for Tax Liabilities
Late filing of tax returns or payment of liabilities, such as self-assessment or VAT, can lead to serious consequences including hefty penalties and charges. Luckily, it does not have to come to this if bookkeeping is online, kept up to date and tax has been set aside in small monthly increments throughout the year. You could go one step further before your accounting year finishes and assess your online reports to see how much profit you’ve made. If your business has made a profit, you could think about using some of the profit to reinvest in your business which would help to reduce the tax bill.
6) Lack of Budgeting and Financial Planning
Without a solid budget and financial plan, you will find it almost impossible to make informed business decisions and achieve financial goals. Also, it can result in cash flow problems and overspending. Set aside some time to create a realistic budget and then track your financial performance against it. Together, they are essential tools for the growth of a business.
Correcting the above accounting mistakes can save your business a significant amount of time and money, as well as improving your cash flow and overall financial health. Whilst bookkeeping isn’t many business owners’ idea of fun, it’s important to recognise the impact that it has on your business.
If you are struggling to manage your accounts then it may be time to outsource to a professional bookkeeper who can make the process significantly easier for you, as well as offering financial awareness and insight.