Starting your own business is exciting. You could be doing it for any number of reasons and there will be 101 things to sort out. In the rush to get off the ground, bookkeeping often gets relegated to the bottom of the start-up to-do list. For many new business owners, the main reason is there are always seemingly more important issues to consider. You’ll probably be able to guess the first mistake start-ups commonly make when it comes to keeping financial records:
1. Not doing any – until it’s too late
This is probably the most common mistake. The work then piles up – probably in a box file or shoebox – and you get further and further behind, to the point where you never have time to catch up. The more you try to hide from the problem, the more it will occupy your thoughts. Bookkeeping really is one of those things where if you do a little bit every day, you will always be in control.
2. Not using software
Whatever you do, use software. Electronic bookkeeping systems are much more convenient. You could use Excel if you don’t want to pay for specialist accounting software. At very least, it does the adding up for you and you have something set out in a format you can email to your accountant, which saves time and money when it comes to doing accounts or returns.
3. Not having a separate bank account
If you mix your business and personal finances, you’re just making life more difficult, not least because you will need to separate it all out when it comes time to tax return time – or pay your accountant to do it. The first thing you should do once you have settled on a business name is sort out a bank account.
4. Not filing bank statements in order
It sounds simple, but you’d be amazed how many people don’t do it. What happens? You give your statements to your accountant at year-end and they phone back later to tell you a statement is missing. This means you’ve just paid your accountant (who probably charges by the hour), to organise your bank statements, when you could have saved money by doing it yourself.
Now you must find the missing statement, too. If your online banking records do not cover the full year, this will mean having to spend time on the phone to the bank to get replacement statements sent out, creating unnecessary delays and a greater risk of late-filling and a fine.
5. Not numbering sales invoices sequentially
Numbering your sales invoices sequentially means you will be better organised. It also helps you to keep track of dates by which invoices should be paid, which enables you to establish an efficient system for chasing overdue invoices.
6. Not being organised and up to date
Failing to maintain your books in a timely and accurate manner can lead to disaster. Pretty soon you begin to lose control of your business, which can ultimately lead to its failure. Having accurate and up-to-date financial information about your business enables you to judge its performance and perhaps anticipate and take steps to overcome cashflow difficulties.
7. Not retaining purchase receipts
The result? Working out your business costs accurately over the year becomes more time-consuming. You risk failing to account for certain expenses, which means paying more tax than you need to. Even relatively modest expenses can mount up, so keep a close record of every penny your business spends.