Whether you’re a new or experienced business owner, financial responsibilities, including accounting, can take a while to get the hang of.

 

According to Wasp Barcode’s State of Small Business Report, only 26 per cent of business owners consider themselves “very knowledgeable” about accounting – but without learning the ropes, you could leave yourself and your business open to mistakes, and whether big or small, this could have a huge impact.

 

To help you avoid making any errors, we have listed 10 accounting mistakes business owners are prone to making, and why these can be so harmful.

 

  1. Calculation errors

 

Simple mathematical errors are the most common accounting mistake that business owners make – which doesn’t come as a surprise. Math mistakes can result from posting entries to the wrong account or even just making typos, but the good news is they’re usually easily avoidable.

 

While the most obvious way to reduce calculation errors is to slow down and double-check your entries, that’s not the only solution. Switching over to automated accounting can eliminate the need for manual entry and increase accuracy by pulling data straight from the source.

 

  1. Struggling to be accounting software shrewd

 

With so many things to juggle and hats to wear as a business owner, it’s understandable that some may not have the time to correctly learn the accounting software they have chosen to use.

 

The right online portal technology allows your business to conveniently and securely access documents, tax returns, financial statements, and other important materials; upload files for your accountant; receive news and other messaging from your accounting firm; pay invoices; and even access online business software.

 

Not knowing what the bookkeeping software is capable of doing means you could certainly make a mistake or miss out on some powerful functionality, and could also lead to unused reporting capability and incomplete information that results in bad business choices.

 

  1. Mixing business and personal finance

 

One of the most common accounting mistakes business proprietors make is to mix their business and personal finances. Keep these separate and distinct to provide a more precise track record of what was really used for business and what was specifically related to personal use only, to avoid any confusion or errors.

 

You could also run into trouble when it comes to taxes or auditing your firm’s accounts.

 

  1. Falling behind on entries and reconciliation

 

Time flies by as a business owner and the months can pass without making any entries in the books or reconciling any business checking statements, credit card statements, or other types of financial accounts. This means financial statements and reports are not current and without up-to-date information, it can be challenging to make sound business decisions.

 

  1. Not automating invoices

 

From sending invoices out in a timely manner to following up when a client fails to pay, there’s a lot to keep up on.

 

Not only do missing invoices equate to missing funds that can be used to grow your business, but it can also lead to poor cash flow management.

 

Automated invoicing is the process of scheduling invoices, in advance, to be issued automatically at a specified date and time. Online invoicing packages enable business owners to set this up. Alternatively, one-off invoices can easily be manually issued without the need for a bookkeeper, even from mobile devices – this ensures payment will be met on a specific date to ensure you aren’t at a loss.

 

  1. Lack of documentation procedures

 

Your business will need to conduct an audit at some point – this is a legal requirement in the UK. During this process, auditors will scrutinise the company’s financial information to determine whether the financial statements present a true, fair and complete picture.

 

Business owners will need to be able to provide documentary evidence to support the financial statements – if not, then they risk non-compliance in the event of an audit.

 

  1. Throwing away receipts

 

Paper trails still count, but even those can become digital now. However receipts are kept, they must be recollected. Receipts provide solutions to any mistakes or gaps in bookkeeping records and many offer supplementary deduction opportunities come tax time.

 

  1. Losing track of petty cash

 

Every business that uses petty cash should have a dedicated custodian, who can manage it and approve purchases. This ensures accountability and limits the potential for fraud, theft and abuse.

 

Businesses should have clear policies regarding petty cash purchases and every purchase should have an accompanying receipt for the expense to maintain clear documentation for deductions.

 

The receipts and remaining cash should equal the original amount designated to the fund.

 

Not having a petty cash policy, custodian or receipts can create headaches for your bookkeeper and may result in serious problems when taxes are filed.

 

  1. Not paying themselves

 

Most business owners make the crucial mistake of not paying themselves a salary from their own business, but it’s important to remember that your business is a separate entity from yourself.

 

Regardless of whatever role you do, you must assign a monetary value to it and compensate yourself as part of the business’ normal operating expenses. Paying yourself a reasonable wage is important because it is a true cost of running a business.

 

If you are not around to run the company, someone else will need to do it for you, and they won’t work for free.

 

Plus, not compensating yourself or assigning a value to your work artificially inflates the firm’s performance by showing a greater profit margin than reality.

 

  1. Trying to do it yourself and not seeking expert advice

 

There’s no denying that managing your own accounts can be tricky and time-consuming – but many business owners persevere in a bid to save money.

 

However, attempting to balance the books when you’re untrained, or simply don’t have the time, could ultimately end up costing you more than hiring a professional.

 

Professional bookkeepers have the required skills to do the job quickly and efficiently, and they have the necessary expertise to locate subtle errors that might otherwise be missed. They’ll also be aware of the tax changes that could affect your day-to-day financial practices

 

In the long run, having a second set of eyes on your financial records is extremely beneficial and will save you time and money.

 

If you’re struggling with your in house accounting – don’t worry, that’s why we are here!

 

We have been established for over 50 years now and every client receives a cost effective and excellent level of service to meet all their needs.

 

We want you to achieve the best possible return for your business and we have a work ethic of straightforward, honest and open discussion with our clients about their affairs. Whether it’s help with tax planning or VAT preparations and returns, we are here every step of the way to help your business thrive.

 

Want to know how we can help you? Get in touch with our team on info@chuhanandsingh.co.uk or call 01642 244090 for advice and support.