Accounting and bookkeeping may not be a favourite business chore, but every entrepreneur knows they are critical. This does not mean that accounting mistakes aren’t made; in fact, some are fairly common.

Good accounting processes ensure you keep track of vital aspects of your business like cash flow and invoice payments. If your accounts are up to date, you are better placed to avoid fines for late VAT or tax returns and keep your business on an even keel. 

Here the team at Neil Smith Accountancy look at the most common mistakes that we see when dealing with small and medium-sized businesses in Essex. 

1. DIY Bookkeeping – An Accounting Mistake?

While there are lots of accounting software packages, many small Essex businesses still use paper and an Excel spreadsheet to do their accounting. This can mean you have trouble tracking all your incomings and outgoings and don’t keep up to date. 

For sole trader businesses, this can work okay. Still, as things become more complicated, for example, if you start employing staff or contractors to work with, it’s essential to develop a more formal bookkeeping process.

Accounting software is available which can make bookkeeping far simpler for you. Depending on the size of your business and number of clients, there is a range of price points to choose between. There are also some platforms which offer a free service.

2. Mixing Business and Pleasure

Many smaller businesses in Essex tend to have their business invoices paid into their personal account. They also don’t differentiate between what is a personal expense to themselves and their business. It can make it difficult to sort everything out when you come to do your tax returns. 

Opening a business account makes sense for a variety of reasons. Of course, it separates the personal from the business but it also gives you a few added benefits. It takes just a few minutes to set up and most have the facility to link into the major accounting software packages. Minimal research will help you choose the right one, including a variety of free business account providers. 

Our advice is, rather than making more work for yourself when you come to organise your taxes, separate your work and business accounts. It will save you a lot of time and quite a bit of money. 

3. Missing the Small Things

Carrying on from opening a business account, small enterprises in Essex are good at noting down the big expenditures but are less focused on the small things. 

As the saying goes, every little helps. That’s why it’s critical to track all your spending and make sure anything that lowers your tax burden is noted and appears on your annual tax return. 

4. Underestimating the Importance of Cash Flow Management

Many small businesses live from job to job. This means it’s essential to be attentive to cash flow and build up resources when possible. Good cash flow management allows you to make better plans for the future and helps you overcome hiccups in your business. 

Again, this largely drills into the previous three points. Keep track of your incomings and outgoings, keep your business activity separate so you have a clear idea of what’s going on and use the latest software to manage your invoicing. It helps to build up capital when you can because it gives your business more security and greater flexibility. 

Check out our blog post on better cash flow management.

5. Not Keeping Regular Bookkeeping

We’ve lost count of the small Essex businesses that leave their bookkeeping right to the last minute. Not only does this cause a great amount of stress around January it can mean you miss vital expenses that could offset your tax burden and save you money. 

Get into the habit of doing your bookkeeping regularly so that it’s up to date and you know where all the information is. At the very least, this gives you a good view of how your business is performing at any one time and can help you plan better for the future. 

If you are a small to medium sized business in Essex and you are searching for a chartered accountant to work with, check out the team at Neil Smith Accountancy today. A good small business accountant will help you to recognise and avoid these common accounting mistakes… As well as making tax return time run smoothly with much less stress!