Doing your own bookkeeping has its advantages, but be sure to avoid these common mistakes.
Utilising an inept bookkeeping system
Whatever system you are using, be it an excel spread-sheet, manual cash-book, or accounting software, you should be able to retrieve the information that is required to comply with your obligations to government agencies. Furthermore, you should keep all data safe and secure with back-ups of all computer systems.
Not registering all bank transactions
Regardless of the bookkeeping system you use, you have to register the money going in and out of your business. All transactions have to be recorded, plus: a detailed check of all items going through your bank account has to be carried out to avoid getting in trouble with tax authorities.
Neglecting it until the last moment
Of all these common mistakes, this one is the most common since most ‘self-made’ bookkeepers don’t have the time to do it. Leaving your bookkeeping to the end of the year or to the end of the quarter may seem like a good option, but it’s not since it can be harmful to your business for the following reasons:
- It can seriously hurt your cash flow. A delay in issuing sales invoices will result in delays in the collection of money and even bad debts.
- Filing late VAT and tax returns will give rise to penalties and interest.
- The longer the gap between binge bookkeeping sessions the more likely you are to lose receipts and not claim all of the allowable expenses.
- It may be difficult to remember what some of the expenditure was for.
- Incomplete records will cost the business more in terms of higher accountant’s fees at the year-end to find the errors and omissions and fix them.
- Missing expenses will increase the profits on which tax is paid.
Mixing personal and business finances
Another common mistake: sole traders often choose to open one bank account, merging personal with business finance. That might seem the most convenient and cheapest way of operating, but it’s not since it causes extra work when it comes to writing up the books. It also introduces an element of doubt in the mind of HMRC inspectors as to the validity of business expenses. They will also tend to treat all bank receipts, including personal items, as business income. Owners of limited companies must be particularly careful. Any drawings from a company bank account must either be for salary or dividends.