How to avoid the seven deadly sins of bookkeeping

You probably didn’t start your business because you love bookkeeping. And you probably do your own bookkeeping to save money, but the benefits don’t end there.

Regularly entering your income and costs into your financial records can give you a far better understanding of your business income and spending, so you can judge how well your business is performing and control your cash flow.

Sound bookkeeping is key to running a successful business, but many small-business owners make the same bookkeeping mistakes. So, what are the seven deadly sins of bookkeeping and how can you go from sinner to saint if you’re committing them?

1. Underestimating the importance of bookkeeping

Running a small business means having to “wear many hats” and with so many things vying for your attention, updating your financial records can easily slip down your to-do list – especially if you dislike doing it. But the wellbeing of your small business relies on you staying in touch with your cash flow, and updating your financial records regularly is pivotal to that. Lose track of your key numbers and your business could soon end up in serious trouble. Be sure to make updating your financial records regularly a key priority.  

2. Using a paper-based system instead of bookkeeping software

Some small-business owners still maintain paper financial records, often because it’s what they’ve always done or they’re reluctant to use accounting software, because they lack knowledge and experience. Some simply don’t fully appreciate the many benefits accounting software brings.

Using accounting software can save you lots of time and effort. It’s easier to correct mistakes and you can access your financial records wherever you are. Accounting software can also help you to quickly and almost effortlessly invoice your customers, as well as keep your expenses well-organised, so you can better manage your spending. Costs can be totalled up accurately, quickly and conveniently, while monthly subscriptions for accounting software are affordable (around a tenner a month). 

Need to know! Accounting software is often compatible with other time- and money-saving software, for example, Self Assessment tax return filing software. This can save you lots of time and hassle, while preventing mistakes in your tax return.        

3. Not updating your bookkeeping figures regularly

For your financial records to be useful, you must update them regularly. Small-business owners often don’t do this because they’re short of time and busy with many other things. Sometimes they struggle with bookkeeping or avoid it because they dislike  it.

Taking a “little and often” approach offers a solution. Much depends on how many sales and purchases your business makes; while a retail business owner might need to update their financial records every week, a service business might only need to do it once a month. The key is to regularly set aside enough time to concentrate on the task in hand and get it done and dusted. 

4. Getting your bookkeeping figures wrong

Accuracy is essential if your financial records are to prove valuable. Mistakes can easily be made, and the bigger the mistake, the bigger the consequences. You need to ensure accuracy when updating your financial records. Giving yourself enough time and doing it somewhere you’ll be free from distractions can enable you to get it right the first time. Never rush when updating your financial records, because mistakes are more likely.

5. Letting your expenses get out of control

Many small-business owners struggle to manage their expenses, often because they don’t have a reliable system that they stick to. The results can be a huge mess, which wastes time and money when you need to work out your tax expenses as you’re completing your annual tax return. All of your expenses should be detailed and conveniently categorised within your financial records. Good organisation and updating your financial records regularly are essential.

Need to know! You must retain receipts and invoices for business purchases for at least five years after the 31 January online-submission deadline of the relevant tax year.   

6. Failing to reconcile your bank statements and your accounts

Put very simply, this means making sure the balance in your business bank matches the balance you see in your financial records or accounting software. It can help you to spot errors or omissions in your financial records. If there are any mistakes, you’ll have a false impression of your cash flow, which can be very dangerous if your errors are big ones. It’s advisable to reconcile your bank statements at least every month. You should also reconcile all transactions, including credit card payments, PayPal transfers, etc. 

7. Not listening to what your bookkeeping figures are telling you

Some small-business owners are pretty good at entering accurate figures and updating their financial records regularly. But where some fall down is they don’t take enough time or indeed any time to assess the figures within their financial records and understand what they say about business performance and development (or lack of). You should take time to look at your financial records, at least every month, to compare and better understand your costs and sales. It could enable you to make decisions that put your business on a better footing and ultimately much more successful.

GoSimpleTax is award-winning software that offers you an easier way to complete and file your Self Assessment tax return. And to ensure that your tax return is error-free and that you’re claiming all of your allowable expenses, you can get your Self Assessment tax return checked by one of our experts GoSimpleTax also integrates with Xero, FreeAgent, FreshBooks and SumUp.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.