Effective Bookkeeping Improves Business Efficiency and Cash Flow
Bad habits can sometimes creep in unnoticed. When it comes to bookkeeping, they can be a serious hindrance to business success.
For any business, bookkeeping is often seen as a “necessary evil” and something that has to be done, but is a distraction from the day to day running of the business. For a small business, a sole trader or a new startup, this is even more the case – often, bookkeeping tasks are the responsibility of the proprietor, or a manager who has other commitments.
Adopting bad bookkeeping habits, however, can have a serious impact on cash flow and profitability, while potentially setting up bigger problems in terms of tax liabilities further down the line. This is why it is always worth talking to a local accountant to get tax advice and also to find out what additional bookkeeping services they can provide. Here, we take a look at five of the most common bookkeeping errors – how many of them strike a chord?
1) Letting the invoicing slide
When a business is struggling financially, the owner often spends inordinate amounts of time bugging clients to pay their bills to get some money coming in. The tragedy is that this is usually a situation that has been brought about by not taking invoicing seriously enough during better times. Ensure invoices are sent out promptly and that late payers are chased at set dates – that way, the customers also get into good habits.
2) Haphazard filing
If bills, invoices and statements are strewn across the desk or crammed into one box file, it is impossible to get a clear view of how the business is performing. It also means that when the time comes to submit tax returns, there will be an almighty task to gather everything, leading to wasted times and potential inaccuracies. A paperless system with everything filed electronically is the ideal solution – it can also be shared easily with the accountant.
3) Using an enthusiastic amateur
In a small business, everyone has to wear multiple hats from time to time. But when someone with a background in sales or business strategy tries to deal with the bookkeeping, it is a disaster waiting to happen. For one thing, they are diverted from their area of expertise in which they should be generating revenue. For another, the likelihood of a mistake rises exponentially.
4) Missing deadlines
Being busy is a good sign for any business. But being too busy to get your tax return in on time can have seriously unpleasant consequences. Fines and penalties are only the beginning. It is also likely that HMRC will decide that if a business is so disorganised that it can’t file its tax return on time, it is worthy of a closer look and a detailed audit.
5) Neglecting the details
If you take a client out for coffee and only spend a few pounds, it is tempting to simply not bother with a receipt and to chalk it down to experience. That’s a dangerous mindset to get into, and can ultimately cost the company dear over the course of a year. Always get a receipt, and file it appropriately at the end of the day.