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.
Are you a budding entrepreneur or a business founder interested in managing your finances? It’s important to keep your books in order to avoid making costly mistakes. In this article, we’ll discuss 11 common bookkeeping mistakes and how to avoid them. Don’t worry, we’ll explain everything in simple terms, so you can understand and apply these tips to your own business. Let’s get started!
1. Failure to Outsource
You might feel like you have to do everything yourself, but that’s not true. Your time is limited, so it’s important to outsource tasks that you don’t enjoy or don’t play to your strengths. This way, you can focus on what you’re really good at and have more time to focus on growing your business.
2. Keeping Physical Receipts
Using paper receipts is outdated. Take advantage of technology and use apps or software to keep track of your receipts. It’s faster, smoother, and safer to store your records digitally.
3. Unreconciled Invoices
Make sure to match every payment with its corresponding invoice. This helps avoid mistakes like double-charging a client or making billing errors.
4. Lack of Proper Tools
Using Excel might seem convenient, but it’s better to invest in accounting software that suits your needs. Software like Xero (cloud-based accounting software) can help you keep track of your finances, pay employees, and even submit your VAT returns.
Bonus: If you’re ever unsure when it comes to using new software, refer to point one and outsource this to someone with a better understanding! Speak to our team
5. Misunderstanding VAT
If you’re not sure about VAT and taxes, consult an expert or rely on verified sources like government websites. Googling might not always provide accurate information.
6. Miscalculating Payroll Taxes
When you’re a small business without a dedicated HR or payroll department, it can be challenging to ensure accurate payroll. Look for software that can help you manage employee pensions and National Insurance taxes.
When you join Addition, you can add payroll as a feature to your personalised finance plan. Learn more
7. Not Knowing the Best Way to Pay Yourself
Instead of putting yourself on the payroll like your employees, consider a combination of salary and dividends. This can be a more tax-efficient way to pay yourself. For example, you can do this 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
Take advantage of the grants available to support your business. These can be helpful if you ever end up going through unexpected events or any big changes. Research thoroughly and consider outsourcing the task of applying for grants if needed.
9. Not Utilising Financials As Management Accounts
Your financials can provide valuable insights into your business. Treat them as management accounts to notice trends and patterns in your business, and use them to make informed decisions. For example, 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.
Avoid over-complicating your management accounts. Use brackets to categorise services and expenses efficiently.
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.
Be careful not to miscategorise expenses, as it can affect your taxes.
11. Allocate Costs to the Wrong Financial Year
Make sure to allocate costs correctly to the corresponding financial year. This helps create an accurate picture of your business and ensures your tax bill is correct.
By avoiding these common bookkeeping mistakes, you can keep your business finances in order and make informed decisions. Remember, it’s always beneficial to seek help when needed and use technology to streamline your processes. Good luck with your business endeavors!
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.