When you’re running a service business, there are always plenty of things competing for your attention. Looking after clients, managing your team and finding new work quite understandably tend to come higher up the list than bookkeeping.
The problem is that small bookkeeping mistakes have a habit of building up in the background.
An invoice that doesn’t get sent, a receipt that never makes it into the accounts or a transaction that’s been coded incorrectly might not seem particularly important at the time. But over a few months, they can affect your cashflow, your VAT returns and, importantly, how useful your financial information actually is.
Here are six of the most common bookkeeping mistakes we see and, more importantly, how to avoid them.
1. Leaving invoicing too late
You’ve done the work, but have you actually invoiced for it?
It sounds obvious, but invoicing is surprisingly easy to push to the bottom of the list when you’re busy.
And if an invoice goes out two weeks late, there’s a good chance the payment will arrive two weeks late too.
For service businesses, where you’re often paying staff and other costs before you’ve been paid by your customer, that can have a real impact on cashflow.
What helps?
Have a clear process for when invoices are raised. Depending on your business, that might be as soon as a project is completed, at particular milestones, or on the same date every month.
The important thing is that invoicing becomes part of your normal process rather than something you remember when you have a spare five minutes.
2. Getting VAT wrong
VAT is one of those things that can look relatively straightforward until you come across a transaction that doesn’t fit the norm.
Which VAT rate should you use? What happens if your customer is overseas? Can you reclaim VAT on a particular purchase?
We’ve seen plenty of situations where something has simply been given the wrong VAT treatment because it wasn’t obvious what should be used.
One incorrect transaction isn’t necessarily a disaster, but repeated errors can result in inaccurate VAT returns and potentially additional VAT being due to HMRC.
What helps?
If you’re unsure, ask rather than guess.
Having your bookkeeping kept up to date also means unusual transactions can be picked up and dealt with as they happen rather than months later when the VAT return is being reviewed.
3. Missing business expenses
Receipts have an amazing ability to disappear.
They stay in email inboxes, get left in bags or cars, or sit waiting to be dealt with “later”.
The problem is that if an expense never makes it into your bookkeeping records, your accounts won’t show the true cost of running the business. Depending on the expense and your circumstances, you may also miss out on tax relief or VAT that could otherwise have been claimed.
What helps?
Make recording expenses as easy as possible.
There are plenty of document capture tools available that allow you and your team to photograph or forward receipts and invoices as you go.
The particular software matters less than having one clear process that everybody actually uses.
4. Paying for things you no longer use
This isn’t technically a bookkeeping error, but it’s something good bookkeeping can help uncover.
Software subscriptions are a great example.
You sign up for something because you need it, then six months later you’re no longer really using it. Meanwhile, £20 or £50 continues leaving the bank every month.
One subscription probably won’t make much difference. Five or six might.
What helps?
Review your regular outgoings every few months.
Ask whether you’re still using each service and whether it’s still providing enough value to justify the cost.
Good bookkeeping gives you the visibility to spot these costs rather than allowing them to disappear amongst everything else.
5. Putting transactions in the wrong place
How transactions are categorised might sound like something only your bookkeeper needs to worry about.
But it actually matters if you want your reports to tell you anything useful.
If subcontractor costs are mixed in with general expenses, for example, it becomes much harder to understand what it really costs you to deliver your services.
And if the same type of expense is treated differently each month, comparing your financial performance over time becomes difficult.
What helps?
Consistency.
Your bookkeeping should be set up around your business so that income and costs are recorded in a way that gives you useful information.
It’s one of the reasons we don’t believe bookkeeping should simply be about entering transactions. The way the information is recorded affects what you can learn from it afterwards.
6. Not keeping the paperwork behind your transactions
Seeing a £500 payment on your bank statement tells us that £500 left the business.
It doesn’t tell us what you bought, whether VAT was charged, or necessarily whether it was a business expense.
That’s why keeping the invoice or receipt behind a transaction is important.
Businesses are also required to retain accounting records for specified periods, so relying on your bank statement alone isn’t enough.
What helps?
Again, a simple document capture process makes a huge difference.
Send or photograph paperwork as you receive it rather than trying to find everything several months later.
Your future self (and your bookkeeper!) will thank you.
Most bookkeeping problems start small
There’s a common theme running through all six of these.
They’re rarely caused by someone deliberately doing something wrong. More often, they’re the result of being busy and not having a clear process in place.
And that’s why regular bookkeeping makes such a difference.
When your accounts are kept up to date, we can spot things that don’t look right, ask questions while they’re still easy to answer and make sure small issues don’t quietly build into bigger ones.
Good bookkeeping isn’t just about having tidy records for your accountant or getting your VAT return submitted on time.
It’s about having accurate, up-to-date numbers that you can actually use to run your business.
At Numberwork Services, we provide ongoing bookkeeping, VAT and payroll support for growing businesses, helping to keep everything connected and giving business owners a clearer picture of their finances.
If your bookkeeping has become something you keep meaning to sort out, we’re always happy to have a chat about how we could help.
Book a call