Accounting Mistakes You Can’t Afford
to Make
By Business Desk
Tuesday, February 6, 2018.
Every business has its fortunes tied
directly to its money. Even if it’s not the reason you started a business, it
is the lifeblood that keeps the doors open, the lights on, and the website
running. So, there really isn’t a reason that so many business owners are prone
to the following accounting mistakes. Here, we’re going to look at just a few
of the most common mistakes that can end up costing you a lot of money and
perhaps even the business.
Failing to take bookkeeping seriously
We’ve all heard of the disdainful way that some
people refer to accounting as “bean counting”, and how it’s not worth the time
spent on it. That’s one of the most dangerous attitudes to have, and if you
fall behind on your bookkeeping, you are handicapping your business. You are
missing the financial information that can help you make better choices, you
may be missing figures that factor into your taxes and more. Don’t take a blasé
approach to your finances. Keep a bookkeeping schedule dictating the
tasks you have to do every day, week, month, and year to ensure you never fall
behind.
Not tracking overheads
One of the tasks that are most commonly forgotten
is the necessity to track your overheads. Overheads are your most regular
expenses, covering things like utilities, internet costs, services and software
you are regularly subscribed to. They might seem like a fixed cost, but they
can change over time and more than you think. Utilities can vary wildly
depending on how you run the business, whereas the services and software you
use can see a price hike and you might very well miss the email telling you
that fact if you have them on auto-renew. You have to take a closer look at
your overheads every month to ensure they’re consistent and, where they aren’t,
you have to update your budget and perhaps decide whether you need a more cost-effective alternative.
Mixing up the future and the present
It is important to track not just the money you
have now, but the money you expect to have in future. For instance, if you’re
waiting on invoices or you’ve taken on a contract that promises a certain
amount of profit, but you won’t receive it until the job is done, you should
make a record of that. However, don’t make the mistake of mixing your future
profit accounts up with your existing cash flow. Your cash flow should
tell you exactly how much money is in the business and should line up 1-to-1
with your bank account. If you find any discrepancies, fix them. Otherwise, you
may mistakenly think you have more money in the bank account than you do and
end up spending money that you don’t actually have yet.
Neglecting small expenses
Just like your overheads, the smaller expenses can
climb up over time. This is especially true if you travel a lot or meet a lot
of clients for your job. The cost of every flight, drive, lunch, and so on can
eventually pile up to make quite a difference to your accounts at the end of
the year. But without the right expense tracking tools, you could be
entirely unaware of this. Not only will this result in the discrepancy as
mentioned above. If you’re not keeping receipts and other records of expenses,
you might be missing your opportunity to take advantage of certain tax breaks,
as well.
Handling it all yourself
The truth is that, as important as your accounts
are as vital as it is for a business owner to have some financial chops, taking
on your accounting entirely by yourself is unwise. Choosing a chartered accountant
for your business has several perks that you would be unwise to flatly dismiss.
For one, they can take a lot of the time and the effort out of bookkeeping and
preparing your taxes. What’s more, they aren’t just bookkeepers, they are
legally qualified to give you tax advice that non-chartered accountants can’t.
What’s more, they provide all sorts of information and advice, taking a closer
look at your books to inform future decision making, loan application, business
plans and so on.
Filing taxes wrong
If you haven’t been using an accountant, there’s a
good chance you haven’t been doing your taxes properly. What’s more, the
temptation is there, and is easy to understand, for a business owner to fudge
their taxes a little here and there in order to end up in a better position.
However, little changes here and there can eventually end in a big VAT fraud investigation or some other
sort of visit from the HMRC. If that happens, you are beyond the help of an
accountant and you’re more likely to need the services of a tax lawyer instead.
Of course, it’s better to avoid that possibility altogether, but it’s a good
idea to have some help on hand in case you ever have any run-ins with the
taxman.
Failing to manage debt
Just as dangerous as mishandling your taxes is
mishandling your debt. Debt is a factor of life for most business owners.
Business loans, credit cards, services they have to finance, there are few
companies without debt. But don’t get too complacent with it. If you fail to
come up with a debt repayment plan as soon as you take it on, it’s easy for it
to get out of control. There are business debt
hotlines that can help you create a plan to start repaying
or to help you find your way out a debt spiral when it gets out of control.
You might be able to fix an accounting mistake here
and there, but if they keep piling up, they can result in serious legal action
or simply such an accumulation of losses that your business collapses from
within. Give your accounts the attention they deserve and don’t avoid investing
in some legal help when you’re faced with tax, VAT, or accounting matters you
don’t understand.
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