One of the biggest challenges many business owners face is keeping their books up to date and ensuring they are accurate. Even a minor accounting mistake can be costly, and worse, put your business at risk. You have to avoid accounting mistakes, and to help you do that, we’ve rounded up some of the most common accounting mistakes small business owners make.
Mixing your business and personal finances
It’s not uncommon for business owners to use their personal finances to make a business-related purchase, especially when starting out. However, creating a situation where the boundaries and record-keeping between personal and business accounts aren’t clear is one of the easiest ways to muddy the waters of your business’s finances. What’s more, if you’re not keeping a record of your business expenses, you could be missing out on valuable tax deductions.
You can avoid this by separating your business accounts from your personal finances. If you accidentally use your own money for a business expense, make sure that you record it manually like you would a cash transaction. As always, don’t forget to keep the receipts if it was a cash purchase.
Taking the DIY approach to accounting
This is possibly one of the biggest mistakes most business owners make. While you can take care of your accounting when you’re just starting out, having someone with the right knowledge and expertise do it for you often makes a lot more sense; especially when you consider how much an error could cost you in the long run. Even if you can’t afford to hire a full-time bookkeeper, it’s a good idea to have an accountant look over your books once a month to make sure you stay on the right side of the collector of internal revenue.
Hiring the wrong person
Finding the right accountant for your business matters. The person you hire could be the reason your business thrives or fails. Don’t just go with the cheapest option, as it could end up costing you more. When selecting an accountant, approach it as though you would with a potential hire. Take the time to find an accountant who can fulfil your business’s needs today and as your business grows.
Not recording all your expenses
Since debit card or credit card expenses from your business bank account can easily be linked to your accounting software, it makes it easy to overlook a few cash expenses. Like that time you took a client out for coffee and quickly paid with a few notes from your wallet, or that time you bought office furniture at a second-hand shop and had to pay in cash. These expenses need to be recorded as well or you won’t have an accurate picture of your business expenses and you could end up paying more taxes than you should be. Try to avoid using cash, where possible. Even for tiny expenses like coffee for a client.
Not knowing the difference between cash flow and profit
Did you know that it is possible for a business to make a lot of money and still go bankrupt? Understanding how cash flow and profit relate to each other is crucial.
Your cash flow is the funds that are transferred in and out of your business. Your profit is what remains from sales revenue after the company’s expenses are deducted. It’s important that you keep track of things you’re spending versus what you’re selling. Make a habit of reviewing your financial statements monthly to get a clear sense of your business’s bottom line.
Sable International has specialised accountants that can assist with all of your accounting requirements. We offer accounting packages that can be tailored to suit your business’s needs. Get in touch with our accountants on firstname.lastname@example.org or give us a call on +44 (0) 20 7759 7553.