If you are a start-up business the information below will be extremely valuable to you. Avoiding mistakes in areas such as bookkeeping can determine whether you survive as a new business. The excerpt below outlines ten common mistakes.
Starting your own business is very exciting. You could be doing it for any number of reasons and there will be 101 things to sort out. In the rush to get off the ground, bookkeeping often gets relegated to the bottom of the start-up to-do list. For many new business owners, the main reason is there are always seemingly more important issues to consider. You’ll probably be able to guess the first mistake start-ups commonly make when it comes to keeping financial records:
1. Not doing any – until it’s too late
This is probably the most common mistake. The work then piles up – probably in a box file or shoebox – and you get further and further behind, to the point where you never have time to catch up. The more you try to hide from the problem, the more it will occupy your thoughts. Bookkeeping really is one of those things where if you do a little bit every day, you will always be in control.
2. Not using software
Whatever you do, use software. Electronic bookkeeping systems are much more convenient. You could use Excel if you don’t want to pay for specialist accounting software. At very least, it does the calculations for you but could restrict you as you grow.
3. Not having a separate bank account
If you mix your business and personal finances, you’re just making life more difficult, not least because you will need to separate it all out when it comes time to tax return time – or pay your accountant to do it. The first thing you should do once you have settled on a business name is sort out a bank account.
4. Not filing bank statements in order
It sounds simple, but you’d be amazed how many people don’t do it. What happens? You give your statements to your accountant at year-end and they phone back later to tell you a statement is missing. This means you’ve just paid your accountant (who probably charges by the hour), to organize your bank statements, when you could have saved money by doing it yourself.
Now you must find the missing statement, too. If your online banking records do not cover the full year, this will mean having to spend time on the phone to the bank to get replacement statements sent out, creating unnecessary delays and a greater risk of late-filling and a fine.
5. Not having a filing system for purchase invoices
There is a simple way of organizing your purchase invoices:
- Have two files – one for paid invoices, the other for unpaid invoices.
- When you pay, write the date and method of payment on the invoice.
- Once paid, move it to the paid file.
- Keep both files ordered alphabetically by supplier name.
6. Not paying by card or transfer
Your bank will do some of your bookkeeping for you for free. How? If you pay by Internet transfer, credit or debit card, a permanent record of the transaction is provided on the bank statement, detailing the date, amount and recipient’s name. In bookkeeping terms, that’s a great start.
7. Not numbering sales invoices sequentially
Numbering your sales invoices sequentially means you will be better organized. It also helps you to keep track of dates by which invoices should be paid, which enables you to establish an efficient system for chasing overdue invoices.
8. Not being organized and up to date
Failing to maintain your books in a timely and accurate manner can lead to disaster. Pretty soon you begin to lose control of your business, which can ultimately lead to its failure. Having accurate and up-to-date financial information about your business enables you to judge its performance and perhaps anticipate and take steps to overcome cash flow difficulties.
9. Not retaining purchase receipts
The result? Working out your business costs accurately over the year becomes more time-consuming. You risk failing to account for certain expenses, which means paying more tax than you need to. Even relatively modest expenses can mount up, so keep a close record of every penny your business spends.
10. Not having separate office space
When doing your books, use a room away from noise and distractions of living with others (e.g. partner, kids, flat mate, etc). You’re likely to get your work done quicker and you’re probably less likely to make mistakes.
Source: Start Up Donut
