Keeping accurate financial records is essential for running a successful business. Yet even the most organised business owners can make bookkeeping errors that lead to lost profits, unnecessary tax bills, and cash flow problems.
Here are three common bookkeeping errors, and how to avoid them.
1. Mixing Business and Personal Finances
The problem:
Using the same bank account for both personal and business transactions makes it difficult to track income and expenses. It can also cause problems if HMRC ever reviews your records.
The cost:
- Missed tax deductions because expenses aren’t clearly documented
- Inaccurate profit reporting, which can affect loan applications or investor confidence
The fix:
Open a separate business bank account and use it exclusively for business transactions. Link it to accounting software such as Xero for automatic categorisation.
2. Failing to Record All Transactions Promptly
The problem:
Leaving receipts in a drawer or waiting until year-end to log income and expenses means you risk forgetting items, making data entry errors, or scrambling to meet tax deadlines.
The cost:
- Missed VAT reclaims and expense deductions
- Incomplete records, which can lead to HMRC penalties
- Poor decision-making due to outdated financial reports
The fix:
Schedule weekly bookkeeping sessions or use cloud accounting software with bank feeds. This ensures records are always up to date and accurate.
3. Incorrectly Categorising Expenses
The problem:
Misclassifying expenses, such as putting a capital purchase under “office supplies”, can distort your accounts and affect your tax position.
The cost:
- Overstating or understating profits
- Claiming the wrong allowances, leading to HMRC issues
- Inaccurate reporting for budgeting and forecasting
The fix:
Use consistent expense categories and seek guidance from your accountant. Many cloud software tools allow you to create custom categories to match HMRC requirements.
Key Takeaways
- Separate your personal and business finances
- Keep your records up to date all year round
- Categorise expenses correctly to avoid costly mistakes
Need Help with Your Bookkeeping?
At Crossley & Davis, we help small businesses keep their books in perfect order – saving time, reducing stress, and avoiding costly errors.
Get in touch today to streamline your bookkeeping and keep more of your hard-earned profits.
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