As a small business owner, bookkeeping can often feel like a daunting task. With so many moving parts to keep track of, it’s easy to make mistakes. However, these mistakes can have serious consequences, from lost revenue to legal issues. In this blog post, we will discuss the five most common bookkeeping mistakes that small businesses make and how to avoid them.
At King and Taylor, we are Chartered Accountants & Tax Advisors In Gravesend, we help businesses big and small with their accounting needs so get in touch if you are in need of any bookkeeping assistance or you just need a chat with a professional.
Mixing Personal and Business Finances
Mixing personal and business finances is a common bookkeeping mistake in the UK that can have significant consequences. It can make it difficult to accurately track business expenses and revenue, which can lead to missed deductions and overpaying taxes. In addition, in the UK, failing to keep personal and business finances separate can lead to legal issues, such as HM Revenue and Customs (HMRC) investigating the business’s finances and potentially fining the business for non-compliance. If you are facing an investigation from HMRC then you can read more about the in this post by Unbiased here.
To avoid this mistake, UK small business owners should set up separate bank accounts for their personal and business finances. This will allow for easy tracking of business expenses and revenue and ensure that all financial records are accurate and up to date. It will also help to ensure that the business is complying with all UK tax laws and regulations, which will help to avoid potential legal issues.
In the UK, mixing personal and business finances can also affect the limited liability protection that a limited company structure provides. If a limited company’s finances are found to be mixed with the owner’s personal finances, the limited liability protection could be lost, meaning that the owner’s personal assets could be at risk in the event of legal action or insolvency.
Furthermore, UK tax laws require businesses to keep accurate records of their financial transactions, including separate records of all business and personal transactions. If personal and business finances are mixed, it can be difficult to provide a clear record of the business’s financial activity, which can result in penalties and fines from HMRC.
In addition, if a business is VAT registered, the mixing of personal and business finances can result in the business being unable to claim back VAT on certain expenses, which can increase the overall tax burden on the business.
Overall, it is crucial for UK small business owners to keep personal and business finances separate to ensure compliance with UK tax laws and regulations, protect their limited liability status, and maintain accurate financial records. This can be achieved by setting up separate bank accounts, maintaining detailed financial records, and seeking the advice of a qualified accountant or bookkeeper to help manage the business’s finances. To get more information on common tax mistakes read our other blog post on Common Mistakes Small Businesses Make With Their Taxes In The UK And How To Avoid Them
Failing to Keep Accurate Records
Failing to keep accurate records is another common bookkeeping mistake that small business owners in the UK should avoid. Keeping accurate records is crucial for monitoring the financial health of the business, preparing tax returns, and making informed decisions about the future of the business. In the UK, businesses are legally required to keep accurate records of all financial transactions, including income, expenses, and VAT records.
To keep more accurate records then it would be worth looking into some accounting software like Quickbooks or Xero as this allows you to keep track of your expenses automatically via their app and file receipts.
If a business fails to keep accurate records, it can result in a range of consequences. Firstly, the business may miss out on potential tax deductions and credits that they are entitled to, resulting in overpaying taxes. This can have a significant impact on the business’s cash flow and profitability. Secondly, inaccurate records can lead to errors in tax returns and HMRC audits, which can result in penalties and fines.
In addition, inaccurate records can also affect a business’s ability to secure funding, as lenders and investors will want to review accurate financial statements before making a decision. Poor record keeping can also make it difficult to prepare accurate financial statements, which can affect the overall credibility of the business and damage relationships with stakeholders.
To avoid this mistake, UK small business owners should ensure that they keep accurate and up-to-date financial records. This includes keeping track of all income and expenses, maintaining detailed VAT records, and reconciling bank and credit card statements regularly. It is also recommended to use accounting software to help manage financial records and transactions, which can save time and reduce the risk of errors.
Overall, accurate record-keeping is crucial for the success of a small business in the UK. By keeping accurate financial records, businesses can ensure compliance with UK tax laws, access potential tax deductions and credits, and make informed decisions about the future of the business.
This type of task is where a reliable accountant would come in handy, you can use an accountant to do all of this for you so you can worry about the business rather than the nitty gritty of keeping records. Get in touch with King and Taylor today for a reliable accountant in Gravesend Kent.
Not Reconciling Bank Statements
Not reconciling bank statements is another common bookkeeping mistake that small business owners in the UK should avoid. Reconciling bank statements involves comparing the transactions recorded in a business’s accounting system with those recorded in their bank statement to ensure that they match. This process is crucial for identifying errors or discrepancies in financial records and can help to prevent fraud or other financial issues. This can be a very tedious task so getting a trusted accountant to do this can save you a lot of time and effort.
Failing to reconcile bank statements can result in a range of consequences for the business. For example, it can make it difficult to identify errors in financial records, leading to inaccuracies in financial statements and tax returns. This can result in penalties and fines from HMRC, as well as damage to the business’s reputation.
In addition, not reconciling bank statements can lead to missed payments, overdraft fees, or other banking errors that can have a negative impact on the business’s cash flow and profitability. It can also make it difficult to manage the business’s finances effectively, as the business owner may not have an accurate picture of their current financial situation.
To avoid this mistake, UK small business owners should make sure to reconcile their bank statements regularly, preferably on a monthly basis. This involves comparing the transactions recorded in the business’s accounting system with those recorded in their bank statement and making any necessary adjustments or corrections. This process can help to identify errors or discrepancies early on, allowing for quick resolution and preventing potential issues down the line.
Reconciling bank statements is a crucial part of effective bookkeeping for small businesses in the UK. By ensuring that all transactions are recorded accurately and that there are no discrepancies, business owners can manage their finances more effectively, avoid penalties and fines, and make informed decisions about the future of their business. Contact King & Taylor today if you need a hand doing this, we are professional chartered accountants in Gravesend Kent.
Overlooking Small Expenses
Overlooking small expenses is another common bookkeeping mistake that small business owners in the UK should avoid. Small expenses may seem insignificant at first, but they can quickly add up over time and have a significant impact on the business’s cash flow and profitability.
One example of a small expense that is often overlooked is business-related travel expenses, such as parking fees or public transportation costs. While these expenses may seem small, they can add up quickly, especially if the business owner or employees are travelling frequently. Other small expenses that are often overlooked include office supplies, software subscriptions, and minor repairs and maintenance.
Overlooking small expenses can lead to several consequences for the business. Firstly, it can result in overestimating the business’s profitability, as these expenses are not accounted for in the financial statements. This can lead to inaccurate financial forecasting and decision making. Secondly, it can make it difficult to track expenses accurately, leading to errors in tax returns and potential penalties from HMRC. Lastly, it can make it difficult to identify areas where the business can save money and increase profitability.
To avoid this mistake, UK small business owners should ensure that they track all expenses, no matter how small they may seem. This can be achieved by maintaining detailed records of all transactions, including receipts and invoices. Accounting software can also be helpful in tracking small expenses and automating the bookkeeping process. There are lots of accounting software available if you want to read more into the subject then read this post about the best accounting software for small business.
In addition, small business owners should regularly review their expenses to identify areas where they can save money. This can involve negotiating better rates with suppliers or switching to more cost-effective alternatives.
Overlooking small expenses can have a significant impact on the financial health of a small business in the UK. By tracking all expenses and identifying areas where savings can be made, business owners can improve their cash flow and profitability, and make informed decisions about the future of their business.
Failing to Plan for Taxes
Failing to plan for taxes is another common bookkeeping mistake that small business owners in the UK should avoid. Taxes can be a significant expense for small businesses, and failing to plan for them can result in unexpected tax bills, penalties, and fines from HMRC.
There are several taxes that small business owners in the UK need to be aware of, including VAT, corporation tax, and employer’s national insurance contributions (NICs). It is important to understand how these taxes work and when they are due, as well as any applicable tax relief or deductions that the business may be eligible for.
Failing to plan for taxes can have several consequences for the business. Firstly, it can result in unexpected tax bills that the business may not be able to afford, leading to cash flow problems and potentially damaging the business’s credit score. Secondly, it can result in penalties and fines from HMRC, which can be significant and have a negative impact on the business’s finances and reputation. Lastly, it can make it difficult to accurately forecast the business’s financial position, making it challenging to make informed decisions about the future of the business.
To avoid this mistake, UK small business owners should ensure that they plan for taxes in advance. This involves estimating the business’s tax liability for the year and setting aside funds to cover these expenses. Accounting software can be helpful in tracking tax liabilities and automating the tax payment process.
A tip that a lot of small businesses should follow is to try and always save at least 20% of your earnings as it comes in. This avoids the situation where, when it comes to paying your tax bill, you actually have enough to pay it. If you have saved too much (since 20% might be too much!) then you have a nice bonus at the end of the year for yourself.
In addition, small business owners should seek professional advice from a tax advisor or accountant to ensure that they are aware of all applicable taxes and any available tax relief or deductions. This can help to reduce the business’s tax liability and ensure compliance with HMRC regulations.
Planning for taxes is a crucial part of effective bookkeeping for small businesses in the UK. By understanding the business’s tax liability, setting aside funds to cover these expenses, and seeking professional advice, small business owners can avoid unexpected tax bills, penalties, and fines, and make informed decisions about the future of their business. If you are struggling to keep a good record of your income and expenses then take a look at our services to see how we can help. Get in touch for a quick chat with one of our experts accountants in your area.
Bookkeeping Experts in Gravesend
Bookkeeping can be a challenging task for small business owners, but avoiding these common mistakes can help you keep your financial records accurate and up to date. By setting up separate bank accounts, keeping accurate records, reconciling bank statements, tracking all expenses, and planning for taxes, you can ensure that your business is on the right track financially.
Remember, bookkeeping is not just about complying with legal requirements but also about ensuring the financial health of your business. By avoiding these common mistakes, you can make sure that your business is running smoothly and efficiently. If you are still struggling with your bookkeeping, consider hiring a professional bookkeeper or accountant to help you manage your finances.
Are you struggling with bookkeeping for your small business? Get in touch with us today to get a free consulation about how we can help your business.