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Bookkeeping mistakes & how to avoid them

We all make mistakes in our day-to-day life, and that’s no different when running a business, the key to making any mistake is to learn from it. 

I remember reading a quote on Facebook or some social media platform from Einstein; it read’ Insanity is doing the same thing over and over again and expecting different results.’ It stuck with me and made me think how important it is to start a business with the knowledge that mistakes will be made and not to be afraid to make them as long as you learn from them. 

I’ve been running my business now for over 11 years, I’ve worked with 0000’s of companies so not only have I worked through my own mistakes I’ve witnessed many more. 

Start as you mean to go on

I’ve seen time and time again is businesses starting without having a bookkeeping plan; it’s so easy when starting a new venture to rush out of the starting blocks, but I cannot recommend enough having the bookkeeping plan in place from day 1. There are so many solutions out there and choosing the correct one is essential. You need to choose one that fits your business and the way you work.  

The reason its important is not only for tax purposes but most importantly, to keep a track on cash flow which is essential in the early days of starting your business. It will allow you to know where the money is being spent and most importantly, that you have enough reserves for the launch phase. 

Know your chart of accounts 

The number of conversations I have had with customers when setting up their chart of accounts that go something like’ Tell me why you need to know that…’ For some reason, when we do this setup task, people think that you need to analyse absolutely everything, you don’t. You only need to study in any detail the items that actually mean something to you and truly help with the running of the business. 

Ask yourself, for example, will a nominal code of’ Travel’ suffice or do you need to know how much you have spent on Trains, Taxis Planes and so on. If it does then fine, but it probably doesn’t. The reason why I would always recommend a small but concise chart of accounts is for consistency of posting transactions; the numbers need to mean something and if you have 000’s of options to post a transaction to then mistakes are sure to be made. 

Keep it short; keep it meaningful! 

Stay on top of your books

So you’ve started your business, you have your bookkeeping plan in place and your off and running. Now pat yourself on the back. However, your work is not quite finished. Now it’s essential to keep your books up to date; I’d recommend updating each day if you can but if not weekly. Why is that you may ask? 

Firstly consistency, regular updating of the books will mean you are more likely to remember what every transaction is for and therefore post it correctly, that will give you a meaningful set of figures. 

Secondly, a wise person once said to me’ The more you put in, the more you get back’ The same applies to bookkeeping if you’ve gone to the effort of implementing a bookkeeping system so now the time to use it! Regular posting will mean you will have a set of numbers that you can review, and they will give you an actual position of the business. With a platform such as Xero, it allows you to have an almost real-time view of the company as long as it’s updated regularly and consistently. 

Know your limitations 

Not just in business but sometimes in life, it’s essential to know your limitations. It’s not a weakness; it’s a strength! You run your business because your great at what you do, it’s essential for you to concentrate on what you do best and if bookkeeping is not for you then contact someone who can complement your business and be able to present the numbers in a way that means something to you. 

Bookkeeping itself isn’t complicated, and the chances are you’re more than capable of keeping the records, but you may not want to spend a Sunday night working on the books, or you may know that it’s just not your thing. Don’t leave it, realise early on that it’s an essential part of the business and not just a compliance thing. It can make or break it. Love your numbers. 

I hope the above helps a little, any questions about anything I’ve written then please do let us know. We are here to help. Have fun running your business and all the very best. 

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