Top 8 bookkeeping mistakes made by new businesses
Bookkeeping - 02/11/2023
Let’s face it… starting a business comes with its fair share of challenges.
From securing capital to marketing new products and services, new business owners face all sorts of hurdles while things get off the ground. But one thing’s for certain: neglecting bookkeeping (the process of maintaining accurate financial records) is something that new businesses simply can’t afford to do!
Ready, steady, startup…
The entrepreneurial landscape in the UK is booming right now. In fact, 753,168 new businesses were established between March 2021 and March 2022 alone. But startup success is far from guaranteed – statistics show that around 50% of startups don’t make it to their fifth year.
To ensure your business is one of the survivors, you need to stay on top of your bookkeeping. That’s why we’ve put together this list of common bookkeeping errors made by new businesses so that you can avoid making the same mistakes as those doomed to fail.
Ready to keep your financial affairs in order and help your business thrive for years to come? Let’s get started…
What are the most common bookkeeping mistakes made by new businesses?
1. Poor record keeping
One of the most common bookkeeping mistakes made by new businesses involves failing to maintain detailed records of financial transactions – from lost invoices, receipts, and bank statements to important financial documents left in disarray.
Without proper records, businesses can find it hard to track income and expenses, prepare for tax season, and make informed financial decisions – all of which can really set a new business back!
2. Mixing business with pleasure
Another frequent misstep made by new business owners is mixing personal and business finances. This can lead to confusion, make it difficult to accurately track business expenses, and even have legal and tax implications.
To maintain financial clarity and avoid setbacks, new business owners should open a business bank account and use it strictly for business transactions. Personal expenses such as groceries, utilities, and holidays should be kept entirely separate.
3. Incorrectly categorising expenses
Incorrectly categorising business expenses can affect cash flow because different expenses are subject to different tax rules. For example, you can usually deduct payroll costs but there are specific limits on deductions for expenses related to entertaining clients. Plus, some business expenses – such as employee-related expenses – might qualify for tax credits.
For help with categorising expenses, new businesses should seek professional guidance or invest in appropriate accounting software so that they can maximise deductions and tax credits, and properly manage their tax liability.
4. Forgetting to reconcile bank statements
Another common mistake made by new businesses is not reconciling their bank statements regularly. Reconciliation is the process of ensuring that the financial records in your books match the records held by the bank.
If reconciliation isn’t done regularly, it can lead to errors, oversights, and missed deductions, which can significantly impact a new business’s financial health.
5. Missing tax deadlines
Paying taxes is a significant part of running any business and missing tax deadlines can lead to penalties, interest charges, and undue stress. The problem is, new business owners often underestimate the time and effort required for tax compliance – 600,000 taxpayers missed the 31 January deadline in 2023 alone!Given this, it’s essential that new businesses thoroughly understand their tax obligations, set deadline reminders, and allocate sufficient time for tax preparation to avoid late filing and maintain a good relationship with the tax authorities.
6. Failing to budget for taxes
Yes, we’re still talking about taxes because, even if businesses remember to file their taxes on time, not all remember to set aside enough money to actually pay them!
That’s right, without a clear understanding of their tax obligations or a dedicated savings account, some new businesses can find themselves struggling to pay their tax bills come tax season, especially if they have irregular income. To avoid this, it’s important for new businesses to put aside a portion of their monthly income to ensure they have enough funds available when tax season arrives.
7. Overlooking employee payroll and benefits
If your business has employees, properly managing payroll and employee benefits is another essential part of bookkeeping. It involves calculating and withholding the correct amount of taxes, ensuring timely payments to employees and tax authorities, and staying compliant with employment and labour laws.
Neglecting this aspect of bookkeeping can result in legal issues, financial penalties, and disgruntled employees, of course!
8. Not seeking professional help when needed
We get it – starting a new business is expensive and cutting costs wherever possible can help to get things off the ground. But bookkeeping isn’t an area where new businesses can afford to cut corners!
Professional bookkeepers are trained to manage financial matters efficiently and effectively, and seeking their help can save time, reduce errors, and ensure compliance with tax laws. New businesses should consider outsourcing their bookkeeping so that they can leave the numbers to professionals and focus on what matters most – the success and growth of their business.
How can I avoid making bookkeeping mistakes in my new business?
Your business’s financial health should always be a top priority. Follow these essential steps to avoid making any major bookkeeping blunders as you get your business off the ground.
- Educate or delegate: Be prepared to learn about the ins and outs of bookkeeping yourself or hire a professional to handle everything for you. Cutting corners simply isn’t an option!
- Invest in software: Easy-to-use accounting software, such as Xero or QuickBooks, can help to streamline the bookkeeping process, reduce errors, and provide valuable insights into your financial performance.
- Reconcile and review: Regularly reconciling your financial records and reviewing your financial reports will help you to stay up to date and informed about your business’s financial health.
- Set deadline reminders: Set up reminders for tax deadlines so you’re not rushing at the last minute – and don’t forget to put money aside to actually pay them!
- Learn from past mistakes: When you make a bookkeeping mistake, use it as a learning experience so that you don’t make the same mistake again.
Find the perfect bookkeeper for your new business
If you’re wondering where to find the perfect bookkeeper for your new business, choose Numero! Our team consists of highly specialised outsourced bookkeepers who can provide expert guidance on keeping your cash flow steady and your business on the path to growth.
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