5 common accounting errors
Accounting errors and oversights take money out straight out of your pocket and put it directly into the pocket of the taxman, your customers, or your suppliers. Individually, these errors might not cost you a lot of money but added together over the course of a year – well, let’s not even think about it.
Here are 5 accounting mistakes that we see all too often.
Confusing personal and business finances
How do you separate what you spent on a business and what you spent on yourself if you’re running everything from one business account? The obvious answer would be by keeping receipts – and you’d be right. However, it makes the process of bookkeeping and accounting much more drawn out (and expensive) and could leave you more likely to be challenged over your affairs by HMRC.
By having a separate personal and business account, you can avoid these issues and speed up the process of filing your tax returns and paying no more tax than you need to.
Not chasing unpaid invoices
Chasing invoices is one of the least enjoyable part of running a business. Right now, you may find that there are several unpaid invoices that you are still yet to collect. This is the money that is owed to you. If you don’t chase it up, then it tells tardy payers that you will accept late or no payment for your work.
You should create a strict policy for tracking and chasing late invoices to avoid any getting away from you in the future. A few points that you may want to include are:
- Make a set time after the invoice is late that you will contact the customer. For example, send an email as soon as the payment is overdue, then call them a week later, and finally write a formal demand 2 weeks after that if you think your customer is taking the Michael.
- Keep a track of your clients’ payment histories. This will show you who is unreliable – try to take money from them at the point of sale.
- Make sure that you keep a record of the conversations about an overdue payment and that they clearly show that both parties understand when the payment is due and that it is not in dispute. A record like this will be invaluable if the matter is so serious that it needs to be taken to court.
- Online bookkeeping software will display when payments are due and who is still yet to pay.
Not properly tracking your expenses
Claiming on all your legitimate expenses brings down the amount of tax you pay. If you use the traditional method of keeping all of your receipts in paper form, you can end up with a large pile of receipts which are difficult to manage and sort.
Try using an online solution to this – update it every day or week to save yourself time later on down the line. Apps such as AndroMoney and Fudget are tools that can help you with this.
Not planning for long term growth
Failure to plan is planning to fail if growth is important to you.
The cash coming into your account and leaving your account will vary month by month. On a spreadsheet, understand what is coming out, when, and for how much. Average out your sales over the last 3 months to give you a prediction of your income and when you’ll actually receive the money.
Project those figures forward by 3 months or even 12 months. You’ll be able to identify whether you have spare cash for expansion or if you need to reign back on spending to meet future commitments.
Not budgeting effectively
One of the fundamental truths involved in running a successful is to not spend beyond your means and spending no more than you need to. Is what you’re spending money on (including staff) producing the returns you require to run the company and compensate yourself adequately? Are the contracts your company has signed up to (rent, broadband, marketing, franking) really the cheapest? If you’re out of contract, look around for cheaper options offering similar levels of reliability and service.
We can help
If any of this sounds familiar, get in touch – you’re not alone. Call the Panthera team on 01235 768 561 or email email@example.com.