As a small business owner, avoiding common accounting pitfalls can save you thousands or even tens of thousands of pounds. In this post, we’ll explore the top five accounting mistakes that frequently trip up small business owners and how to steer clear of them. Watch my video or read below!
1. Missing VAT Registration and Threshold
When you first start your business, you’re not legally required to register for VAT. However, it’s crucial to keep a close eye on your invoiced income because once you cross the £85,000 threshold, you must register for VAT (From 1 April 2024, the VAT registration threshold and deregistration thresholds will each increase by £5,000 to £90,000 and £88,000 ).
Failing to do so can lead to a sticky situation in which you may have to retroactively charge your customers VAT or, worse, foot the bill yourself—a costly mistake that eats into your profits.
2. Incomplete Records and Record Keeping
In the whirlwind of running a business, maintaining thorough records can easily fall by the wayside. However, incomplete records often lead to lost receipts, missed expenses, and un-invoiced work – all of which can cost you dearly. Develop a simple system for tracking receipts, invoices, and expenses, even if it’s just an envelope in your car. Consistently recording this information will prevent money from slipping through the cracks and ensure you’re claiming all the tax relief you’re entitled to.
3. Overdrawn Director's Loan Account
As a limited company director, it’s essential to understand that your business is a separate legal entity from you personally. Any personal expenses paid through the company, such as tax bills, car payments, or holidays, must be recorded as drawings against your Director’s Loan Account.
If you’re paying your personal tax bill through the company, that’s going to go against drawings that you’ve had; if you are paying personal expenses, like car payments, that’s going to go into your Director’s Loan Account.
So make sure you’ve got a handle on the expenses that going through your business, which ones are personal, and which ones are business, because the personal ones that are directly related to you are coming out of your Director’s Loan Account.
4. Listening to the Wrong People's Advice
Well-meaning friends and acquaintances may offer business advice, but unless they have relevant experience and expertise, their guidance could be outdated or simply misguided. Rely on professional advice from accountants and trusted advisors who understand the current landscape and your specific situation. Listening to uninformed opinions can derail your progress and prevent you from operating at your best.
5. Not Having Proper Systems in Place
As your business grows, having the right systems and team in place is crucial for maintaining quality, consistency, and profitability. Investing in cloud accounting software, document management systems, and customer workflows may seem like an unnecessary expense initially, but these systems will ultimately save you time, money, and headaches as you scale.
While mistakes are inevitable in business, being aware of these common pitfalls can help you avoid costly accounting errors. Remember, perfection is an unrealistic standard – the goal is to minimise mistakes wherever possible and learn from those that do occur. By staying vigilant and seeking professional guidance when needed, you’ll be better equipped to thrive as a business owner and achieve your personal and professional goals.
If you have any questions or need further advice on avoiding these accounting mistakes, I invite you to book a discovery call using the link below. During our call, I’ll listen to your specific situation and provide valuable guidance, with no pushy sales pitch – just a commitment to helping you succeed. Don’t let accounting errors hold your business back; take the first step towards better financial management today.
