Keeping on top of bookkeeping, losing receipts, trying to manage cash flow– the world of small business accounting can be a minefield.
When you’re busy running a business and delivering for your customers, it can be easy to make mistakes.
But to grow a profitable and successful business, having a handle on the numbers is key.
A good accounting and bookkeeping setup will help you plan for the future of your business and can actually save you more time and money in the long-run.
Here’s the most common small business accounting mistakes– and how to avoid them– so you can set yourself and your small business up for accounting success.
Mixing personal finances with business accounts
As a business owner, it can be all too easy to blur the lines between business expenses and personal expenses.
But mixing your business and personal finances is like mixing your drinks– a risky game!
Not having separate business finances– or not having a business bank account– can make it difficult to separate business costs from personal costs, leading to headaches and missed expenses when tax season comes around. And since your limited company is a different legal entity to you personally, it’s best practice to set up a separate business bank account if you don’t already have one.
Any money you earn through your business will need to be taxed and declared to HMRC. That’s why we recommend always keeping business and personal bank accounts separate, even if you operate as a sole trader. It’s more tax-efficient and removes the confusion of what belongs to you and what you’ve earned through your business.
Online banks such as Tide, Starling, and Revolut make it easy to set up a business bank account in minutes, and they integrate seamlessly with leading accounting software such as Xero, QuickBooks and FreeAgent, which makes managing your finances a breeze.
Not doing your bookkeeping regularly
Too many businesses get tripped up by putting off bookkeeping, leaving it too late, or avoiding using bookkeeping software altogether.
This often results in mistakes, skewing your accounts and any financial reporting you do.
Think of bookkeeping as the basis of all your financial decision making.
If you get this wrong, you’re skewing your accounts and won’t get an accurate picture of where your business currently stands. This makes it impossible to do accurate reports and forecasts, which affects your ability to make the right decisions and plan for the future.
Set aside the time to regularly do your bookkeeping, whether it be weekly or monthly. Keeping your books up-to-date means you’re working with accurate numbers and minimises the chances of forgetting to record transactions.
Nowadays, accounting and bookkeeping software makes this easier than ever before.
With Dext (formerly Receipt Bank), just email your invoices or receipts to your Dext email address or photograph them on the app. All that's left to do is review, categorise, and send to your accounting software via the app’s seamless integration.
Not proactively managing cash flow
Ahh, cash flow– two words every business owner needs to wrap their head around to succeed.
Getting to grips with cash flow is one of the best ways to future-proof your business and make the right decisions. But unfortunately, it’s one of THE most common things business owners struggle with.
Trying to run a business without a cash flow forecast is like driving down a country lane at night with no lights on.
Staying on top of incomings and outgoings is essential for ensuring your business stays profitable and healthy, whatever comes your way.
We know cash flow can be a headache, but luckily there’s lots of tools that can take the stress away and do most of the hard work for you.
With Xero, you can get an overview of your total cash in and cash out on your dashboard to quickly visualise your current cash position. And with the Cash Summary tool, you can drill down into more detail about the movement of cash in and out of your business.
These are great tools for keeping an eye on cash flow on a daily or weekly basis, and if you’re new to the world of cash flow management, they’re a great place to start.
To proactively manage cash flow, we recommend hiring a good accountant who can demystify cash flow for you and help you implement a fool-proof cash flow strategy for your business.
Not knowing how to use accounting software properly
Whilst we have some amazing accounting tools at our fingertips, they only work for us when they’re used correctly.
Unfortunately, many small businesses have an online accounting system that they haven’t been shown how to use properly. They connect their bank account, then start coding transactions where they think they should go.
Sadly, they often make mistakes, which means the financial information they’re using to make decisions is wrong.
When left unfixed, this can end up causing big problems for businesses and their accountants alike. Lots of little mistakes quickly snowball into bigger issues that cause problems further down the line.
That’s why we recommend getting a good accountant to get you set up on your accounting software properly. A proactive accountant can advise on the best software for you, set it up for you, and show you how to use it. They’ll also be just a quick call or a message away if you encounter any problems.
Not hiring a good accountant
As a small business owner, trying to do it all yourself in-house can seem like an attractive way to save some cash on your accounts.
But cutting corners can cost you more time and money in the long run.
Managing your own accounts is a major timesuck. Not to mention the host of tax returns and company accounts to file and keep on top of.
The world of accounting and tax is confusing and complicated– even the most number-savvy business owners can make mistakes.
A good accountant will remove the stress and anxiety of doing your accounts yourself whilst trying to run a profitable business. They can also help you save money in the long run with effective tax planning.
This means your focus is where you should be– on building an amazing business.
With some good habits, the right software, and an amazing accountant at your side, you’re setting yourself and your small business up for accounting success.
Want to find out more about small business accounting and how it can work for you?