5 mistakes people make when they try to manage their own bookkeeping

Office block

Bookkeeping is the bedrock of good business accounting.

If you have tidy, up-to-date books then your monthly or quarterly management accounts and end-of-year financial accounts will not only be more accurate but also quicker and easier to produce.

Many businesses have a bookkeeper or accounts administrator, even if they don’t have a full finance team or finance director.

Some sensibly outsource to a dedicated bookkeeping service. And others do it themselves, as best they can, either with the support of cloud accounting software or without.

Over the years, I’ve been handed sets of books with all kinds of bits missing, mishandled or mixed up. In fact, certain mistakes seem to happen time and again.

Here’s a quick rundown of five things you should watch out for.

1. That’s not a VAT invoice!

If your business is VAT-registered, you have to get and retain a VAT invoice for every purchase you want to claim in your VAT return.

Too often, non-professional bookkeepers get confused and think a proforma invoice, a quote or even just an email confirming the order counts. It doesn’t.

A valid VAT invoice can be on paper, electronic, or a paper invoice converted to an electronic format by scanning.

Generally, you’ll need a full VAT invoice, but under certain circumstances, what’s known as a modified invoice can be used, or a simplified invoice in other situations.

A full VAT invoice needs to include:

  • supplier name, address and VAT number
  • your name and address
  • a unique identifier
  • the date it was issued
  • when the goods or services were issued
  • a description of those goods or services
  • total excluding VAT
  • total VAT
  • price per item without VAT
  • VAT charged per item
  • discount per item.

If you don’t have proper VAT invoices, you risk losing out on substantial amounts of money that your business could use to grow.

2. Lazy filing and untidy paperwork

If you don’t keep your records neat and orderly you’ll cost yourself time, and possibly cause yourself a huge amount of stress, at tax return time.

Bookkeeping is where the accountant’s instinct for systems, processes and attention to detail comes into its own.

However busy I am, I always take the time to give each financial document a unique identifying filename, to make sure invoices are sequentially numbered, and to file things like bank statements in chronological order.

Almost as important is to make sure you archive duplicates or older versions of documents so they’re not cluttering the place up.

All of that housekeeping work makes it easier to chase invoices, follow up queries from purchasers and, of course, to put together your tax return.

3. Get over your paper addiction

If you’re still keeping records on paper, you’re stuck in the dark ages.

People have been talking about the paperless office since the 1960s but for decades after, it seemed like a fantasy. In recent years, though, it’s become a reality.

We’ve got smartphones, everyone has email, and cloud accounting software is better and more accessible than ever.

There’s a standing joke among accountants about the client who comes into the office on 27 January with an old cardboard box full of receipts and invoices asking for their tax return to be done. These days, that hardly ever happens, which makes it all the more shocking when it does.

If you haven’t already, get a process in place for scanning and filing receipts, invoices and other financial documents.

You don’t even need a scanner, as such. With accounting apps like ReceiptBank you can use the camera on your smartphone to take a quick picture and automatically upload it to the cloud.

As well as being tidier and easier to share, keeping records in the cloud is also more secure. If your office floods, for example, and your paper records get damaged, you could find yourself in trouble unless you’ve been sending photocopies off-site for safekeeping.

4. Strictly business

Mixing personal and business receipts and records is one understandably common problem.

For sole traders, freelancers and people operating very small businesses, it can be hard to mentally separate business and personal accounts – you feel as if you’re always working a lot of the time, so everything feels as if it ought to be a business expense.

Of course that’s not the case, at least as far as HMRC is concerned.

Sometimes, it’s that people assume, or hope, that something is an allowable business expense and don’t want to know otherwise.

If in doubt, talk to your accountant. If you get everything mixed up throughout the year, unpicking it can be a nightmare at year-end.

Ideally, you should have separate business and personal phones, credit cards and vehicles – a van for work, a car for the commute. That’s not a bookkeeping issue, as such, but it does make bookkeeping much easier.

5. Too much cash

Cash payments are more difficult to record and reconcile.

Hard currency also has a habit of slipping down the back of the sofa.

It’s expensive, time consuming and a hassle to handle and bank.

And (see point 4, above) it’s all too easy for office petty cash and the personal funds in your pocket to get mixed up and muddled.

In short, I’m not a fan.If you can avoid cash payments, in favour of card payments or online transactions straight into your bank account, that’s always the best approach.

If you have to take cash payments, try to use some sort of electronic point of sale (EPOS) setup that syncs with your accounting system or, if you only take cash occasionally, make sure to invoice properly and record the payment clearly.

Get in touch for expert support with your business bookkeeping.

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