Bookkeeping and accounting are crucial aspects of running a successful small business. However, many small business owners struggle to manage their accounting tasks, leading to costly mistakes that can impact business operations and financial health.  The risk of making accounting mistakes is high given the number or rules and deadlines that are involved. 

Failing to keep accurate records. 

As a small business owner, it’s vital to maintain accurate records of all financial transactions. Failing to do so can lead to poor decision – making and even legal troubles. One common mistake is not tracking income and expenditure correctly. 

Picture this:  A business owner buried under a mountain of receipts, struggling to make sense of the tangled web of expenses. This scenario is all too familiar for many new business owners who often underestimate the importance of meticulous record-keeping. 

In the early stages of a business, it’s crucial to establish a robust system for tracking income and expenses. Whether it’s a simple spreadsheet or a user-friendly accounting software, encouraging new business owners to adopt a method that works for them can save hours of frustration later. 

Organised record keeping aids day to day operations but also prepares for future financial returns, providing estimates of tax liabilities and available profits. Regularly reconciling accounts and keeping receipts in an orderly fashion not only ensures compliance but also offers a clear financial snapshot, aiding in informed decision-making. 

Not registering with HMRC on time. 

Dealing with HMRC can be daunting, especially for the inexperienced, but delaying the steps to register can lead to unnecessary financial penalties. 

Whether setting up as a sole trader, partnership, or Limited company there are distinct registration procedures to follow. A good accountant will demystify the whole process and offer support through the set-up phase and beyond. 

Not separating business and personal expenses. 

One of the biggest mistakes a small business owner can make is to not separate their business and personal expenses. Limited companies legally require a separate bank account, and it is equally advisable for sole traders and partnerships. 

Mixing business and personal transactions make tracking business expenses much more difficult and can lead to tax issues. Separating finance in this way is a strategic move that will provide clarity and advantages as the business grows. Future growth plans and financial health checks on the business will be far easier. 

Ignoring Tax Rules and Deadlines 

Many business owners find themselves bewildered by the various taxes they’re obligated to pay. From income tax to National Insurance contributions, Corporation Tax and VAT the list can be overwhelming. 

It is crucial that business owners take an interest in the UK tax system and make an effort to understand the rules. A good accountant will make sure the business owner has a full appreciation of the taxes that affects them and when payments are due. In this way, monies can be ring fenced and protected ready for future tax liabilities. 

Equally important is an understanding of tax allowable business expenses and how they impact on profitability and tax payable, 

Failure to plan. 

New business owners often leap into entrepreneurship without a financial plan, relying on hope and determination. This lack of foresight can lead to cash flow issues and financial turbulence. Without a business plan revenue projection cannot be targeted, anticipated expenses are not known and there is nothing to direct the business or to inform future decisions. 

Regular reviews of a dynamic business plan will allow for planned changes of direction and future growth. 

Without a cashflow, the business owner cannot monitor when additional funds may be necessary or when extra help can be afforded. Seasonal fluctuations can cause pinch points with finance and a forward looking cashflow can help predict this. 

Not seeking professional help. 

Small business owners do not go into business to become accountants and yet, finance is a “hat” they find themselves wearing. To be successful, business owners should engage the support of an accountant to ensure they their record keeping is accurate, they remain compliant but more importantly they have a thorough understanding of their business numbers to aid their decision making and business growth. 

In the long run an investment in a professional accountant will pay for itself, ensuring the financial health and success of a business and providing invaluable support, mentoring and accountability for the business owner. 

 In conclusion, small business owners can ensure that their business not only stays on track but succeeds by avoiding the common and costly mistakes and prioritising best practice. 

 Let us help you   

  If this all sounds like a bit too much and you’d rather leave it to the professionals, then please get in touch.  By outsourcing your accounting to us, you can focus on delivering your services to your customer and growing your business without the distraction of the bookkeeping.