Bookkeeping is a crucial element of any business. Without it, you won’t know if your business is successful or not! Without regular and meticulous bookkeeping, businesses will not be able to determine their profits and losses and make the right moves to improve their business performance.
Even though most Start-up owners are aware of the importance of bookkeeping, many still ignore it and fail to manage their business.
Here are the eight common bookkeeping mistakes that Startups tend to make:
Bookkeeping can be a tedious and time-consuming task, especially for those who are just starting. The first and biggest mistake that most startups make is not hiring a qualified bookkeeper. If you are trying to handle your business books yourself, it is advisable to stop right now! Hire a professional who has significant experience in bookkeeping.
For example, suppose you (or your inexperienced bookkeeper) forget to enter a client’s invoices or the sale amount into the system, that will have an immediate impact on your bottom line. A professional bookkeeper will help you avoid errors and save time &and effort in following industry rules and regulations.
Another common bookkeeping mistake made by Startups is creating multiple accounting sheets and charts. The primary purpose of creating accounting ledgers is to provide an easy reference for financial management. In this way, they can track the previous day’s transactions and forecast the revenue.
A bookkeeper should use a single Microsoft Excel spreadsheet to consolidate accounting charts. These should be maintained consistently. Inability to enter or update data daily will create several problems for the business.
This is perhaps the gravest mistake Startups, or small businesses can make. Failing to adhere to compliance requirements, such as submitting incorrect or incomplete receipts and invoices to the tax department, will have a negative impact on tax returns. Using outdated accounting software can be very time-consuming as the information may not be updated automatically, which may lead to delays in receiving your tax refunds.
Examples of failed bookkeeping include:
✓ Incorrectly accounting for the payroll and payment
✓ Wrong bank deposits
✓ Inability to cancel the merchant account or credit card
✓ Not doing VAT returns
✓ Incomplete or wrong reconciliation of accounts.
HMRC has fixed deadlines for annual compliances. However, if your bookkeeper has delayed the accounting process, you might fail to meet tax filing deadlines resulting in hefty fines and penalties. You may also miss the window for setting up a payment plan if you need to or be penalised by not being allowed to set up a payment plan in the future due to delayed filing and payment in the present.
Having an experienced and reliable bookkeeper and the necessary software will help you avoid such drastic consequences. Corient can help you with reliable software and technology solutions at affordable prices.
Personal expenses cannot be claimed through the business. Irrespective of the business structure, you have to complete an annual tax return for your business. HMRC will know how much money the business has made while deducting allowable business expenses to work out your tax liability and penalties, if applicable.
If you are spending on personal items through a company account, these entries are subject to tax penalties. Using a company account for personal finances would be treated as disguised compensation, subjected to payroll taxes and potential interest. This may lead to reduced investment and hence, lack of growth.
Startup owners should also avoid paying company expenses through personal accounts. It is essential to draw a line between private and company expenditure and make all business payments through business accounts.
Paying bills on time is essential for the success of any small business. However, paying company expenses from the personal account will not solve the core problem and may adversely impact personal finances.
Delayed collection is detrimental to the financial health of any business, especially for startups. Delays in collection may result in severe cash flow problems or even bad debts.
Make sure you are not losing money because of faulty calculations and invoices. If accounting records are processed incorrectly, due dates are frequently miscalculated, and money is being collected late, it is time to hire a professional bookkeeper.
Startup owners often fail to do a periodic review of the accounting records and books. Small businesses certainly do not have enough financial load to keep track every day or week. However, completely ignoring the financial books will cost you more than expected.
Many small businesses are successful because they put in a lot of time and effort into ensuring that their books are accurate and up-to-date at all times. If you have no idea how to achieve this, you can get in touch with Corient to get all the help you need to manage your books proactively.
Each of these common bookkeeping errors can cost small business owners a lot of money in the long run. Startups are already under a tremendous financial strain, and making a single mistake can cost them more than they bargained for. Therefore, it is essential to avoid these common errors to move towards success.