When it comes to accounting, it’s so important that you get your finances in order correctly. Even minor mistakes can have frustrating or serious consequences for your accounts. Yet, even the most diligent among us can stumble into accounting pitfalls if we’re not careful.
Whether you’re a seasoned entrepreneur or just starting your business journey, we’ve put together some of the most common accounting mistakes to help you steer clear of them and save you both time and money in the long run.
Confusing cash and invoicing accounts
One of the big errors we see is people misunderstanding the difference between cash and invoicing accounts. This confusion can cause significant problems, affecting VAT, corporation tax, and even personal tax.
Understanding the distinction between these accounts is very important. Cash accounting records transactions when the money actually changes hands, whereas invoicing accounting records transactions when they are billed. This variance can alter your tax obligations, so clarity here is absolutely key.
Neglecting record-keeping
Ah, the dreaded end-of-year scramble! It’s a scenario many business owners are familiar with, but it doesn’t have to be that way. Keeping your records up to date throughout the year not only reduces stress and panic to find paperwork but also ensures compliance with regulatory requirements. HMRC is moving towards Making Tax Digital (MTD) for non-VAT registered businesses, which highlights the importance of maintaining accurate records.
Not putting tax aside
Taxes are inevitable, yet some businesses either fail or forgot to set aside funds regularly to meet their VAT, corporation tax, or other tax obligations. This can set you up for quite a shock when a hefty tax bill comes around which you may then struggle to pay. By setting aside a portion of your income regularly, you’ll be better prepared when tax season rolls around.
Not using automation tools
Nowadays, there are heaps of automation tools available to help you streamline your accounting processes. From receipt management with Hubdoc to payment processing with GoCardless and Stripe, these tools can save you invaluable time and help to minimise the risk of human error.
Investing in platforms like Xero can also allow for seamless reconciliation and keep your financial records organised in the cloud – no more chasing after elusive paperwork!
Ignoring debtors
Cash flow is the lifeblood of any business, and neglecting to stay on top of debtors can disrupt this flow. With this in mind, it’s important to have credit control procedures and regularly monitoring of outstanding invoices in place. This can help to reduce the risk of any late payments. Remember, proactive communication with debtors can often speed up the payment process and help you to maintain a healthy cash flow.
Neglecting reconciliation
Reconciliation may not be the most glamorous aspect of accounting, but it’s certainly one of the most important! Failing to reconcile your accounts regularly can lead to discrepancies and inaccuracies in your financial records. By keeping receipts and reconciling transactions promptly, you can ensure the integrity of your financial data and identify any discrepancies early on. We know it can be tempting to put this task off, but it really is important so make sure that you schedule a little bit of time regularly to tick it off.
Lack of awareness of regulatory changes
HMRC and other regulatory bodies frequently update tax laws and compliance requirements, which means that it’s important you stay up to date with these changes. This is essential to avoid penalties and ensure compliance.
While a knowledgeable accountant can help you to navigate these complexities, it’s also beneficial for business owners to stay informed and proactive in understanding regulatory changes that may impact their financial obligations.
If you have questions about any aspect of your finances, please get in touch with the Trinity team. We’d love to help!
