5 Common Bookkeeping Mistakes and How to Fix Them

At Holy Brook, we provide like to provide clients you with top tips on how to improve bookkeeping as some common mistakes may cost you both time and money.  So here is our list of five common bookkeeping mistakes and tips, for smoother and more efficient bookkeeping.

1. Mixing business and personal spending

In the spur of the moment, it may seem more convenient to pay for a business expense with personal funds or even paying personal costs out of a business account. Yet, the mixing of your financial receipts makes bookkeeping (and taxes) a bit of a maze. 

Some tips to avoid such a mix up:

  • Manage your business finances in a separate small business bank account
  • Put a sticker on your business bank cards so you don’t confuse them with your bank cards
  • Keep a small amount of cash in your business account as a safety net to cover quick, miscellaneous business expenses (so you’re not tempted to use your money when your business accounts are depleted).

Of course, you can reimburse any transactions you do incur as an expense claim and if as a director you pay personal expenses from your business bank account this can be classified as a directors loan – but make sure you talk to your accountant if you do the latter as there are tax implications.

2. Not classifying employees correctly

Your business may hire self-employed people or sole traders, take on employees or contract with limited companies.  However, sometimes it is not as straightforward to determine what the relationship is and the onus is increasingly on the hiring firm to get it right.  Make sure you are clear as to whether someone is acting for you as an employee or self-employed before starting the engagement, otherwise it could cost you both further down the line.  A useful checker from HMRC is here  

3. Poor communication

Transparency is key… Hence why your bookkeeper should always know what’s going on in your business. Any business, big or small, must maintain complete information of its transactions; and it’s even more crucial that this information is thoroughly communicated with the bookkeeper.

Other than maintaining clear communication with your bookkeeper, generating a clear paper trail of all transactions will make it easier to keep tabs on all of your income and expenditure.

4. Not recording receipts

If paper receipts are lost or disposed of, you will not be able to substantiate costs incurred in your business – which can affect your corporation tax and if you are VAT registered your VAT liability.

Things to note on keeping receipts:

  • Digital records of receipts are suitable
  • You may need to present receipts upon request if your business is audited.
  • List justifications for deductions

The simplest way is to upload photos of your receipts to the accounting software you’re using.   If that’s not possible take a picture of receipts on your phone and store them in Google Drive, Dropbox, or Evernote. Whatever’s easiest.

5. Reconciliation of incomplete records

A straight-forward procedure, checking for reconciliations is to compare your books with your bank statement, ensuring there are no gaps. In such a case, you should contact your bank immediately to resolve the issues of gaps.

Carrying this process out monthly allows you to ensure that bookkeeping errors are successfully eliminated before they lead to a major financial setback.

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