Bookkeeping isn’t the most engaging of activities. You have to record absolutely everything with accuracy and meticulousness — and that can get boring very quickly.
Unless you’re a figures savant, it’s probably quite tempting to cut corners and rush your tasks.
This, however, is a terrible idea. When bookkeeping isn’t entirely accurate, it feeds bad financial data back into your business, which can, in turn, lead to ruinous decisions.
Scaremongering aside, we’ve collected the seven deadly sins of bookkeeping. Avoid these common stumbling blocks, and you’ll be well on your way to keeping your books in excellent condition.
Mixing Personal with Business
As a business owner, it’s so easy to mix business and personal finances. You walk into a supermarket and pay with the company card. You hit checkout on Amazon and bill it to the company account.
It’s such an easy mistake to make, but it can have disastrous consequences down the line.
We recommend all business owners keep their personal and business finances completely separate with separate bank accounts, separate cards, and separate purposes.
This division of finances doesn’t just help reduce the temptation to use company money for personal purchases but also reduces the risk of accidental crossover.
Sticking your head in the sand, humming loudly and ignoring everything that sounds vaguely financial is not a recommended management tactic. Not by me, at least.
In fact, as a business owner, you’ve got a duty to do precisely the opposite and actively track and understand your finances.
If you’re not comfortable around numbers, that’s not an excuse, either. The truth is that you’ve got to get better.
Ask your accountant or your bookkeeper or your friends for some business advice and claw your way to financial acuity.
Dishonest bookkeeping can have almost any motivation — pride, greed, sloth, envy and so on. However, regardless of the motivation, keeping dishonest books is always wrong, and it’ll usually come back to haunt you.
You cannot renovate your house on the company’s cheque book. You cannot underreport earnings and pocket the difference. You cannot skim every second note from the petty cash.
If you try to fudge the numbers, you will eventually get found out, and then you have to deal with the consequences. Keep it honest and keep your business safe.
With more and more automated backup services offering peace of mind for a couple of quid a month, I shouldn’t have to talk about the sin of not backing up.
Unfortunately, I still have to.
Loads of businesses are content to completely ignore backing up, preferring to retain just one copy of their data and store it in one place. God help them if that decade-old hard drive ever crashes to a halt.
I strongly recommend keeping multiple records and storing them in multiple locations. For example, have one external hard drive and one cloud backup service. That way you have multiple replacements should one copy ever be destroyed, lost or corrupted.
No one likes carrying around wads of receipts. It’s a hassle; I get that. However, keeping business receipts for your accounts simply isn’t optional.
If you can’t be bothered to file receipts away, you’ve only got yourself to blame if your accounts get audited, and you can’t provide proof of purchase.
For those of us who don’t like having to store huge boxes of receipts, remember you can always scan each receipt and save them on a computer for safekeeping.
Good bookkeeping is based on accuracy and consistency as this reflects your actual finances and allows you to make informed decisions about your business.
If you’re exaggerating numbers to make your company look more successful, you have no idea where you actually stand.
How much cash do you have in the bank? What can you afford now? Are you heading for a funding gap?
Don’t let vanity stand in the way of success.
Guesswork and Estimation
Bookkeeping simply doesn’t work if your figures aren’t exactly correct. If you’re estimating half the figures and just guessing the rest, your books are worthless.
From petty cash to big expenses, track everything and update your records regularly.
And if you insist on guessing at numbers, don’t say we didn’t warn you when you reach the end of the financial year with a couple of thousand pounds unaccounted for!
About the Author
Gary Easton cut his teeth working at one of the Big Four auditors KPMG. However, a few years ago, Gary decided that SMEs deserves a better service and left to found Tax IQ, a specialist SME accountant based in Edinburgh.