About the Author: Maisie Violet Wicks is a content writer for Private Practice Hub – a free business advice hub for UK therapists in private practice, with hundreds of articles and resources covering finance, marketing, admin, CPD and more.
John Miller is COO at Addition. He’s worked in top-tier finance roles for over 14 years with companies such as Thomas Cook, TfL and EY. John also has experience working with much smaller companies – so his knowledge on common bookkeeping mistakes covers a broad range of sectors and sizes.
Recently, John spoke with our members at Private Practice Hub. In his webinar, he flagged how SMEs can spot – and fix – the frequent mistakes that he sees costing businesses money.
TOP TIP: To watch the full video of John’s workshop, check out the webinar here.
1. Failure to Outsource
John’s first piece of advice is this: outsource everything that you don’t enjoy, or that isn’t one of your strengths.
Time is a resource that is limited and expires. In order to maximise what you have, seek help where you need it – so that you have the time to do what you can do, even better than before.
2. Keeping Physical Receipts
For John, a major concern is when new customers looking to do their tax returns or annual accounts bring him boxes of receipts.
Using paper is a thing of the past when it comes to conducting business. John stresses the importance of using technology to your advantage when handling your accounts – so that your records are kept safely and neatly for reference when the information needs to be accessed.
3. Unreconciled Invoices
The third error John sees businesses make when handling their books is failing to keep invoices or bills reconciled to bank payments.
Make sure that all of your invoices are noted once you have been paid – so you don’t mistakenly double-charge a client or make an even bigger error with a bill!
4. Lack of Proper Tools
While a lot of businesses use Excel to keep track of their finances, John suggests searching for a software that suits you to be able to keep even better track of what comes in and out of your business funds.
The software that John uses as an example is Xero – a cloud-based accounting software that can keep track of much more than what your clients are paying you. It also allows you to pay your employees, and even submit your VAT returns.
John also stresses that while you have the software, it might not be enough to be effective. If you’re ever unsure, refer to point one – and outsource someone with a better understanding!
5. Misunderstanding VAT
Back again to outsourcing: You want to make sure that you are getting the work correct – especially when it comes to VAT and taxes. When you don’t understand what is being asked of you, you cannot possibly expect to get it right – and this could end up costing you money in the process.
In the event that you can’t outsource, do the research!
6. Miscalculating Payroll Taxes
In the webinar, John explains how to account for employee pensions and National Insurance tax. He also provides software examples that will help make this task easier.
7. Not Knowing the Best Way to Pay Yourself
Another game-changing piece of advice: instead of putting yourself on the payroll along with your employees, you should take a mixture of salary and dividends.
One way to do this is by taking roughly £9,000 of salary, just under the cap of employer or employee taxes, and taking the rest of your pay as dividends. This is because up till the first threshold, it’s only a 7.5% tax – rather than 20% income tax.
8. Not Applying For Grants
As a business, you want to make sure that you are applying for as many grants as possible. This is to ensure your business is supported through unexpected events or any big changes that might take place.
John states that there many people you could outsource the task of looking and applying for grants on your behalf to. But if you do it yourself, make sure you’re searching thoroughly for options and combing through your applications carefully.
9. Not Utilizing Financials As Management Accounts
When you treat your financials as management accounts rather than a boring spreadsheet for your taxes, you can start to notice trends and patterns in your business.
Understanding these will help you make smarter, more informed business decisions – like when to hold certain sessions, or what times of day (or month) your services make the most money.
10. Miscategorising or Over-categorising
When you offer multiple services in your businesses, it’s easy to fall into the trap of setting up a different management account for each service to see what works with the service and what doesn’t.
This is over-categorisation – and is much less efficient than you might think.
John suggests that once you have understood how management accounts work, try to work in brackets so that you can see which services work better where, and at what times.
Miscategorising is when you incorrectly place expenses in the wrong accounts. An example of this is when you mark an invoice as not having VAT, when it in fact does, or marking down your salary as a general expense rather than an employee expense.
When you do this, you miss out on potential returns and relief when it comes to taxes on business expense.
11. Allocate Costs to the Wrong Financial Year
The last common mistake John sees in his practice is businesses accidentally allocating costs to the wrong financial year – usually due to a late invoice or payments in arrears.
This causes problems for businesses, because then you are paying tax on the income, while not getting any relief on the costs. For that reason, you want to make sure that your tax bill is correct.
To watch John’s full webinar on these critical aspects of good bookkeeping, click this link.
Want Some Help With That?
Addition’s CORE plan handles your bookkeeping, tax compliance and reporting. You can also choose from add-ons like Payroll, Self Assessment and Credit Control, as and when it suits you.
To find out more about how CORE can help you scale your business, book a call with us today.