Seven Bookkeeping Mistakes That Cost SMEs Money

Good bookkeeping isn't glamorous, but it's fundamental. Get it wrong, and you'll pay—in wasted time, missed opportunities, and sometimes actual penalties. Here are seven common mistakes we see in SME finances, and how to avoid them.

1. Mixing Personal and Business Finances

It seems harmless to pay for that business lunch on your personal card, or to deposit a client cheque into your personal account when the business account is inconvenient. But mixing finances creates chaos at year-end, makes it hard to track true business profitability, and can cause serious problems if HMRC investigates.

The fix: Maintain strict separation. If you do occasionally use personal funds for business expenses, record them immediately and reimburse yourself formally.

2. Losing Receipts

That crumpled receipt in your pocket? It's a tax deduction waiting to be lost. Without receipts, you can't claim expenses against tax, and you can't prove your spending if questioned.

The fix: Use a receipt capture app like Dext. Photograph receipts immediately and let technology handle the filing. Paper receipts fade; digital records don't.

3. Not Reconciling Regularly

Bank reconciliation—matching your accounting records to your bank statements—is how errors get caught. Leave it too long, and discrepancies become archaeological expeditions.

The fix: Reconcile weekly at minimum. With bank feeds in modern accounting software, this takes minutes. Make it a non-negotiable part of your routine.

4. Ignoring Aged Debtors

Revenue isn't revenue until the cash arrives. An aged debtors report shows who owes you money and how long they've owed it. Ignore this report, and you're essentially providing interest-free loans to your customers.

The fix: Review aged debtors weekly. Follow up overdue invoices immediately and consistently. Consider your credit terms and whether certain customers deserve them.

5. Categorising Expenses Incorrectly

Dumping everything into 'miscellaneous' or 'general expenses' might save time now, but it makes meaningful analysis impossible and can cause issues with tax deductions.

The fix: Set up a sensible chart of accounts and use it consistently. If you're unsure how to categorise something, ask your accountant—getting it right from the start is easier than fixing it later.

6. Forgetting VAT Implications

VAT is collected on HMRC's behalf—it's not your money. Yet many businesses treat it as available cash, leading to painful surprises when returns are due. Similarly, failing to reclaim VAT on purchases leaves money on the table.

The fix: Understand your VAT obligations, set aside VAT collected, and ensure you're reclaiming what you're entitled to. Consider monthly VAT returns to smooth cash flow.

7. Treating Bookkeeping as a Once-a-Year Task

The annual scramble to get records in shape for your accountant is stressful, error-prone, and expensive (accountants charge more for messy records). It also means you're flying blind for eleven months of the year.

The fix: Make bookkeeping a little-and-often habit. Fifteen minutes daily beats eight hours once a quarter. Better yet, outsource it to professionals who'll keep everything up to date without you having to think about it.