Accounting faux pas’: What NOT to do in your first year in business
In the supposed glitz and glamour of starting up a new business, it would be fair to say that few entrepreneurs put accounting at the top of their priorities list.
After all, there are clients to go after first. The paperwork can wait. Can’t it?
Well, as you’ve probably guessed, it does need some attention. Sure, there are other pressing matters, but one of the worst mistakes any small business can make is to forget about their accounts.
This is the reason we have put together today’s post. Let’s now look at some of the things you absolutely shouldn’t do in that all-important first year in business.
Mistake #1 – Not keeping track of your expenses
This one is a biggie. If you’re not keeping track of your expenses, you’re not able to accurately calculate your profits (or losses). Not only that, but you could also be missing out on some valuable tax breaks.
There are several ways to keep track of your expenses. You could use a simple spreadsheet, or invest in some specialist software. It doesn’t matter which way you choose, in that first year, the most important thing is getting it done!
Mistake #2 – Not invoicing clients properly
Invoicing is another key area that can trip up small businesses. If you’re not invoicing clients correctly, you could be leaving yourself open to late payments or even non-payment.
There are a few things to remember when invoicing clients:
- Make sure you include all the relevant information, such as your company name, contact details, and the date of the invoice
- Include VAT, if your business is registered
- Clearly state the amount owed and how it should be paid (e.g. by cheque, bank transfer, etc.)
- In the event of late payment, make sure you include a late payment fee
Mistake #3 – Not keeping a tight control on spending
This next point isn’t a direct accountancy mistake, but something you should definitely keep on top of. In the early stages of a business, it can be tempting to splash out on unnecessary things. After all, you’re working hard and you deserve it, right?
In order to make your business a success, you need to be keeping tight control on spending. That means no unnecessary expenses, no lavish lunches, and no spending money on things you don’t need.
If you can stick to a tight budget in those early months, you’ll be in a much better position to make your business a success in the long run.
Mistake #4 – Forgetting about the tax bill
It sounds ridiculous, doesn’t it? However, now that you’re completely responsible for your tax affairs, it’s crucial not to leave these calculations until the end.Just because tax isn’t immediately taken from your profits, it doesn’t mean to say that you don’t owe anything. You will owe plenty – and it will all be due at the end of January. Make sure your business is in a sound enough financial position to cope with this.