Bookkeeping Errors That Are Costing You Money
It’s tax time again for the self employed and chances are if your books are in order, you’re not sweating too much at the prospect. However, if you're sat staring at a pile of receipts and wondering where to start it can be a bit daunting. Read on to see the most common bookkeeping mistakes and more importantly, how to avoid them and make your life easier come tax season.
Poor Record Keeping
Perhaps the most common issue for small businesses and sole traders is tracking and recording all business related expenses. It's easy to lose receipts in the van, forget to ask the cashier for one or accidentally bin it. For day to day expenses this isn't the end of the world, but if you're buying expensive tools it is important to keep them as these are the most scrutinised items on your tax return. Many software providers such as Quickbooks now have apps which allow you to "snap" receipts using your phone's camera, logging them straight away. Another way of avoiding this issue is to regularly reconcile your bank account...which brings us onto the next issue.
Not Reconciling the Bank Account
Reconciling the bank is as boring as it sounds, but it is extremely necessary and acts as a fault finding tool more often than not. If you regularly reconcile the business accounts, you will notice omissions in a timely fashion and your reports will be more accurate and up to date. Leaving this until the last minute will give you a long, drawn out task when you eventually take it on.
Poor Petty Cash Management
We've all done it, used petty cash for a business related transaction and forgotten to record it. Due to the amounts involved per transaction, it may not seem like a big deal - but over time these missed expenses could add up to a big tax saving. Buying a petty cash tin and having one person in charge of the system will help to ensure that all expenses are properly tracked and your business doesn't miss out.
Not Using Software
Most businesses these days operate some form of bookkeeping software, but I still come across those that don't. The most common reason for this is the cost - and they can be expensive - but if you use it properly it will make its money back and then some. Using a package that's right for you will save you and your business countless hours - especially when it comes to things such as V.A.T returns and important reports like the P&L, which are all at the click of a button. Systems such as Xero, Quickbooks and FreeAgent are all popular, affordable options for sole traders and small businesses.
Leaving It Until the Last Minute
Even for professional bookkeepers and accountants, not maintaining the books regularly is not a good idea. Bookkeeping is no-one's favourite task, but the longer you leave it the more you will have to do in order to bring things up together. Leaving it too late can and will lead to mistakes, which will have to be rectified before you can reconcile the banks and rely on reports to be accurate. Little and often is the best way to maintain the books!
All of the above seem pretty basic - and they are - but time and again businesses and individuals make these mistakes and it may be costing them come tax time. If you can avoid these and keep the books tidy, you can minimise (and even eradicate) omissions and errors, meaning you are correctly claiming all legitimate expenses and getting a clearer picture of your business' performance.