A lot of small businesses find book-keeping a very tedious and mundane exercise. However, book-keeping is one of the most important elements in any business. Without accurate book-keeping you won’t know how much profit you really made, may forget to claim for some expenses (ending up out of pocket personally) and you may end up paying more tax. Getting a clear picture of your company’s finances also allows you to make better strategic business decisions.
To help you improve the book-keeping in your business here are some of the main issues we have seen when companies do their own bookkeeping.
Lost or forgotten receipts not appearing in your accounts.
This is very common in businesses. It is easy to lose receipts or forget about those small expenses that seem insignificant. This could mean you pay more tax than you might otherwise have done. There are a variety of apps that you could use which allow you to instantly scan receipts and get them loaded into your accounts (e.g. Receipt Bank on your phone will scan the receipt and load an image of it, with all the correct data, into Xero). Three things help here:
1. Get a good accounting system (we use Xero).
2. Get a receipt app that interfaces with it, scan the receipt then throw it away (so you don’t confuse yourself and enter it again).
3. Spend time every week checking all receipts get entered.
Getting expenses categorised.
Accurately tracking income and expenses in the correct categories allows you to make better decisions when budgeting for the net year, but more importantly some categories have different tax treatments; get those wrong and you could be paying too much (or have the tax man chasing you).
Reconciling bank accounts.
Rule number one is always to use a different account for your business and personal finances. If you enter all of your transactions each week (as mentioned above) your accounting system should have an accurate record of your bank balance. Check that the system’s bank balance and your actual balance match at least once a month (preferably weekly) and investigate/ fix any differences. This will help to minimise errors and it’s a lot easier to do if you do it regularly than leaving it for a whole year!
If you are audited, you may need to provide complete records of business-related activities that are separate from your personal expenses.
One of the joys of cloud book-keeping (e.g. Xero) is that it can hold electronic copies of all your receipts and invoices, and their entire system is backed up.
If you’re not using a cloud system Keep copies of both your incoming and outgoing invoices and receipts in your local system so that you have a complete record of your payments and billing.
You are much less likely to forget expenses if you pay by a business bank card than use cash. Also it will save you time from entering cash, as it will appear on your bank statement (with date of the payment recorded plus the amount and name).
One of the easiest mistakes to make is leaving your book-keeping to the last minute. Put some time aside each day to keep you ahead and to develop a better understanding of your day to day accounts and to keep you on top of your deadlines.
These points cover the main things that go wrong when people do their own bookkeeping, if you would like to talk through any of the points please don’t hesitate to give us a call.
As Accountants for businesses in the London and Essex area, we could, of course, do your book-keeping for you. However many clients find that doing their own bookkeeping and having us do their end of year accounts works well for them.