Emily Coltman ACA, Chief Accountant to FreeAgent – who provides an online accounting system for freelancers and small businesses – gives her tips on five common bad accounting habits to consider quitting in 2013:
1) Not charging your customers enough
When you’re starting out in business – or if you run a small company – it’s very easy to set your prices too low. Many small business owners worry that they won’t win customers if they charge too much – and sometimes they may even decide to charge such a low price that they don’t make any profit.
It’s important to make sure that you charge what your service or product is worth. Think of the time and energy you’re saving your customers, as well as what they’d pay to a competitor.
If you use an online accounting system to manage your accounts, you may be able to get a real-time view of how profitable each of your projects are – so you can make sure that you’re charging enough to cover your costs and make a profit.
2) Not claiming all your expenses
In the hustle and bustle of daily business life, “doing the books” can often slip further and further down the priority list. After all, for most people it’s not the most enjoyable part of running a business.
However, putting off your bookkeeping can mean receipts for business costs that you’ve paid for personally get mislaid and never find their way into your business accounts.
Not only does that leave you out of pocket because your business won’t then pay you back for those costs, it also means your business will pay too much tax because you won’t be able to claim relief on those expenses – two very good reasons to make sure you stay on top of all of your expenses.
If you struggle to manage your expenses, remember that you can also make use of a tool such as ReceiptBank or MobileAgent to help you record your expenses quickly using your mobile phone – or remember that you can also use FreeAgent on the go. This is far better than stuffing your receipts into a shoebox and running the risk of forgetting about them!
3) Not collecting your cash fast enough
Many small business owners are far too nice to customers in this area. They don’t chase late payments up quickly (perhaps because they’re worried about offending their clients) – but it’s important to remember that you need to get the cash if you’ve done the work! Without enough money coming in to pay your bills, your business can’t survive.
Try setting clear payment terms and make sure your customers know when they have to pay you – then keep to them. Of course, you can give your customers more time to pay if they’re in genuine difficulty, but if you have clients who repeatedly fail to pay you on time you may need to raise this issue with them.
If you’re worried about managing or chasing your invoices, you could also invest in specialist invoicing or accounting software that will send out automatic reminder emails to customers when they don’t meet your payment deadlines. You may find this is easier and quicker than chasing them manually.
4) Not meeting your deadlines
The life of a small business owner is incredibly busy and sometimes you can lose track of what you need to be doing. So while you can start off with the best of intentions that all your tax and VAT forms will go in on time and fully paid up, this may not end up happening. Before you know it you could be a month late with your VAT return and HM Revenue & Customs are sending you yellow surcharge forms and threatening to charge you more money if you’re late again.
Don’t fall into this trap. Make sure you know exactly when all your deadlines are and make sure you file all your tax returns and VAT returns and pay your tax on time. If you can’t pay – ensure you tell HMRC before the deadline.
Not filing and paying on time can cost you interest, surcharges and penalties. It also means that you’re more likely to be selected for an inspection by an HMRC officer – which not only takes time but can be very frustrating.
Remember, it’s best for your business to keep on the right side of the taxman!
5) Making your bookkeeping too complicated
It’s easy to be confused into taking too many steps in your bookkeeping and this can cost you valuable time. So are there any ways you could make things simpler?
For example, did you know that in FreeAgent you don’t have to post bills for every cost the business pays for? If the cost has been paid straight away, for example using a debit card, then you can just explain that transaction in your bank account, without entering a bill.
And, did you know that many online accounting applications can “talk” to other systems that you use? For example, you can often link your CRM system to your accounting system, so that when you create a new customer in your CRM system, that person appears automatically as a contact in your books, ready for you to send them an invoice. This saves you setting up the same customer twice, meaning you don’t spend so long on admin and the risk of errors is reduced.
It’s not only CRM you can do this with, either. E-mail marketing systems, expense management applications, online banking, they can all talk to your online accounting system.
It’s very easy to get into bad accounting habits because “the numbers” are a frightening part of running your business, or because you don’t have enough time to do them properly. So make sure your New Year’s resolution in 2013 is to quit these habits and put yourself back in control your accounts. It’ll be hugely beneficial for your business in the long run.
Emily Coltman ACA is Chief Accountant to FreeAgent, who provide an award-winning online accounting system for small businesses and freelancers.