1. The Shoebox filing method
Does your accounting filing system look like this?
Bookkeeping is best done as you go along so you can see how your business is performing. Many small businesses may only need an hour a week to keep their books up to date and this is preferable to spending 52 hours at the end of the year on writing up your books!
2. Not keeping receipts
Always ensure you keep your receipts so you are able to keep track of your business expenditure. This is important so you can ensure you are not allowing your spending to run away with you and also it will enable you to claim the expenses as a tax deduction.
3. Not reconciling
Make sure you are recording all your income and expenditure by agreeing your bank statements to your cash book on a regular basis. Trying to match 12 months bank statements to your accounts at once can be hard work and very time consuming.
4. Mixing business and personal expenses
Many small businesses do not set up separate bank accounts and use their own personal bank account for their business income and expenditure. This can cause errors and may result in business expenditure being incorrectly declared in your business accounts leading to an incorrect tax return.
5. Using the wrong accounting system
For some businesses a manual cash book and records are fine, if you are good with spreadsheets then it is easy to set up a simple accounting system using these but for many accounting software will be needed to keep track of debtors, creditors and VAT. Make sure you understand your accounting system and operate it correctly.