When running a business, mistakes are inevitable and one of the most common areas in which people slip up is with accounting and bookkeeping.
Accounting mistakes can range from minor errors such as forgetting to keep low-value receipts all the way up to issues that can really affect your company’s cash flow and even put you at risk of insolvency. Below are some of the most common accounting mistakes that small businesses make and how you can avoid them.
Thinking you can do it all yourself
There are plenty of business owners out there who want to do their own accounts – firstly to save themselves some money but also because they believe that as they run and breathe the business, that they are best qualified to do the books.
Neither of these things are necessarily true. Accountants know all the best ways to save you money so although you are paying an initial fee, chances are that they will save you money in the long run. Furthermore, just because you have all the necessary skills to run a successful business, it doesn’t automatically mean that you would make a great accountant. Mistakes can be costly and can put your business at risk so it’s best to avoid them occurring in the first place by using someone who knows what they’re doing.
An added bonus is that the time you’re currently spending on doing the bookkeeping can be used on other aspects of the business that will help with growth and increase profits.
Failing to reconcile the books and bank statements
How often does your company reconcile its books and bank statements? Doing so ensures that there are no discrepancies between your recorded transactions and your real transactions. This is a vital part of accurate bookkeeping but is one where small businesses commonly fail because there simply isn’t time to do it.
Covering small expenses out of your own pocket
As a small business owner you have probably lost track of the number of times you have paid for an expense out of your own pocket. When it’s a small bill, a couple of drinks with the team after work the odd thing here and there for the office, it’s easily done.
Believe it or not, this creates two serious issues. Firstly, forgetting to record all of your out-of-pocket payments quickly leads to inaccurate financial records. Secondly, by using your own money and not the business’s, you’re making your company finances appear healthier than they actually are.
If you frequently cover expenses yourself – whether they’re big or small – make sure you record them so they can be fully accounted for in the books.
Using the company accounts for personal transactions
At the other end of the scale, the temptation to use the business account for personal transactions is too much to resist for some. As long as you are the owner of the company, using your director’s account to pay for occasional expenses isn’t a significant problem but frequent use can eventually create financial issues for your business.
If you would like to use your business account for some personal expenses then make sure you speak to your accountant first to ensure it’s feasible. Over-dependence on it can put your company in a difficult and often insolvent financial position.
If you would like more information about managing company accounts or if you are currently experiencing difficulties, please feel free to contact Windsor Accountancy and a qualified member of our team will be more than happy to help.