7 Deadly Sins of Small Business Bookkeeping (And How to Avoid Them)
Running a small business means wearing many hats.
Unfortunately, the bookkeeping hat is one that many business owners would rather leave in the wardrobe. We’ve seen countless small businesses struggle with their financial management – not because they aren’t successful, but because they’ve stumbled across one (or more) of these bookkeeping mistakes.
1. Procrastination: The “I’ll Do It Later” Bookkeeping Syndrome
We’ve all been there. The receipts pile up, the invoices remain unsent, and bank reconciliations become a distant memory. Suddenly it’s month-end and you’re drowning in paperwork.
One client came to us with a carrier bag full of receipts they’d collected over nine months. They spent an entire weekend trying to sort through them, only to find they’d breached the deadline for VAT registration.
The fix? Set aside a specific time each week for bookkeeping tasks. Even 30 minutes can prevent the dreaded paperwork mountain and keep your small business accounts in order.
2. Mixing Business and Personal Finances
This is probably the most common bookkeeping error we see among sole trader businesses and trades. Using your business account to pay for the weekly shop or dipping into personal savings to cover business expenses creates a nightmare when it comes to accurate record-keeping. Or worse still…using the personal account and never having a business account in the first place (you’re accountant doesn’t want to know how often you’ve eaten in KFC or how much you pay for Netflix).
Not only does it take longer and cost you more to separate it makes it impossible to get a true picture of your business performance, but it can also raise red flags with HMRC during tax investigations.
Keep separate bank accounts and credit cards for business and personal use. Your accountant, your business financial health, and your stress levels will thank you.
3. Not Keeping Proper Bookkeeping Records
“I’m sure I’ll remember what this receipt was for” – famous last words of small business owners everywhere.
Proper record-keeping isn’t just about staying on the right side of HMRC; it’s about understanding your business finances. Without accurate bookkeeping records, how can you know which products are most profitable or which expenses are eating into your margins?
We had a client a few years back who couldn’t understand why they weren’t making a profit despite strong sales. When we looked into their books, we discovered they weren’t tracking the true cost of goods sold, including shipping and storage. Easy, but costly, mistake to make.
4. Ignoring Bank Reconciliations
Bank reconciliations might not be the most exciting bookkeeping task, but they’re essential for catching errors and ensuring your financial records match reality.
We had a client who discovered they’d been paying a subscription service for three years after they stopped using it – simply because they never reconciled their bank statements with their accounting records.
Regular bank reconciliations help catch duplicate entries, missing transactions, and potential fraud. Think of it as a health check for your small business finances.
We’ve got a really simnple exercise you can do with your bank statements to quickly find out what is necessary for your small busisness and what can be cancelled and you can save money on. Get in touch to find out more.
5. DIY Bookkeeping Without the Know-How
Bookkeeping software makes it easier than ever to manage your own books, but without a basic understanding of accounting principles, you might be setting your small business up for failure.
I know the adverts for accounting software would have you beleive all you need to do is a few clicks and it’s done. Sadly it’s not that simple. We’ve seen businesses accidentally claim VAT incorrectly, miscategorise expenses, and even miss out entire revenue streams because they didn’t understand the bookkeeping software they were using.
If you’re going the DIY bookkeeping route, invest time in learning the basics or consider getting training specific to your accounting software from a qualified bookkeeper (yes, we do training too).
6. Leaving Tax Preparation to the Last Minute
The Self Assessment tax return rush isn’t just stressful for accountants – it’s potentially costly for small businesses too. Rushing to get your books in order at the last minute means you’re more likely to make bookkeeping mistakes, miss tax deductions, and end up paying more tax than necessary.
Additionally, if you’ve not been putting money aside your tax bill could come as a nasty shock. Preparing early gives you time to save up.
Only this year, we had a new client come to us on the 20th January needing their tax return filed. The rush meant they couldn’t take time to find all their allowable expenses, potentially costing them hundreds in unnecessary tax.
7. Not Getting Professional Bookkeeping Help When You Need It
Perhaps the deadliest bookkeeping sin of all is thinking you need to handle everything yourself. Many small business owners see bookkeeping services as an expense rather than an investment.
The truth? Professional bookkeeping gives you control over your business. It helps you make informed financial decisions, spot problems before they become crises, and ultimately saves your small business money.
How many hours are you spending each week managing your books? What would you do with that time if you had a choice?
How to Redeem Your Small Business Bookkeeping
The good news? These bookkeeping sins are easily forgiven.
Whether you need a complete bookkeeping overhaul or just some guidance on best practices, getting your small business finances in order is one of the best investments you can make.
At ValueAdd Business Solutions, we work with small businesses across the UK to take the stress out of bookkeeping. We can help with as much or as little as you need – from full bookkeeping services to training you to manage your own books more effectively.
Ready to confess your bookkeeping sins? Book a free discovery call and let’s get your small business finances back on track.
