There are various challenges in starting a business, one of which that isn’t necessarily discussed a lot are the challenges to managing your finances and bookkeeping.
Unless you’ve got experience in finance and accounting or are lucky enough to have a business partner who has the requirements can be daunting. While you have plenty of help through cloud systems and various applications built into them it can still be easy to make an accounting error.
Dealing with your bookkeeping and accounts, usually known as ”doing the books”, is normally the least favourite part of running a business and usually gets left to be done in a rush. Unfortunately, this can lead to mistakes, which in turn could cause your business harm if you are working from incorrect figures.
We have highlighted below what we consider to be the most common mistakes business owners can make when starting out:
- The first mistake is mixing your business and personal finances, when you don’t keep the two separate it blurs the lines and makes it difficult to ascertain your business income and expenses from personal. It can also lead to personal expenses being mistakenly claimed as business, resulting in tax relief being claimed when none is available.
The simple solution is to keep two separate bank accounts, one for business and one for your personal transactions. This makes sure that everything is kept separate.
- The next most common error is not keeping the appropriate records. If you fail to keep receipts, invoices (both expenses and income) and keep detailed records it can cause major issues further down the line. Not only are detailed records crucial to make sure your business is running smoothly, but HMRC requires you to keep detailed records for your tax filings.
The solution here is to keep detailed digital records, most cloud accounting software allows you to upload digital copies to each transaction. By making sure you have a digital receipt attached to each transaction you will be covered, it also avoids the need to file after file of physical copies.
- Another easy mistake is miscataloging your expenses, by this we mean allocating personal expenses as business or including a business expense under the incorrect heading, i.e. allocating costs for entertaining a client as travel. The misallocation will not only make it very difficult for you to get an accurate view of how your business is spending money but it can also have an effect on your tax liability as not all expenses are treated the same for tax purposes.
The solution to this is to try to understand not only what the expense is but how to allocate it correctly, as well as making sure you give enough time to bookkeeping to avoid mistakes.
- The next one will most likely only effect a small number of business, but it is a big one – winging it when filing your taxes. Even with all the new software and cloud accounting making it seem a piece of cake to file your taxes the reality is tax is complicated and making a mistake can be very costly.
The solution is to always seek expert tax advice before making any filing or large decisions, especially as there could be tax consequences that you don’t know about.
- Linked to the above, failing to get proper accounting advice is also a common mistake. Managing business finances can be overwhelming and complicated at times but not seeking proper advice can be disastrous and cost you more in the long run.
The solution here is like the above, make sure you are getting regular advice before it gets to the stage where you need it.
If you’d like more information or assistance with your accounting, please get in touch with us. We offer a varied and bespoke service to each client to match their needs.
