As a small business owner or contractor, keeping your accounts in order can be a headache, and one that only gets worse the more you ignore it. Organisation is a key ingredient to success in self-employment, so it pays to keep a firm hand on your bookkeeping.
At Bright Ideas Accountancy, we know how satisfying the contractor lifestyle can be. You pick jobs from an array of clients, serving them one at a time and shaking off any complacency that might otherwise fester in steady employment.
But you shouldn’t assume your finances are doing as well as your business. Without realising it, hundreds or thousands of pounds could be leaking out through holes in your money management.
Over the years, we’ve seen some common bookkeeping mistakes. Here’s how to avoid them.
Leaving your bookkeeping until the last minute
Your day-to-day workflow is probably a mix of meetings, phone calls, and demanding project work, so your books tend to suffer. When everything moves quickly, it’s easy to forget to sit down and focus on the boring stuff.
Treating bookkeeping like homework and delaying it as long as possible only makes the task harder. Eventually, documentation will pile up until it towers over your desk like a paper mountain.
Daily or weekly admin slots are much better. You can deal with the work in separate chunks. FreeAgent makes this approach manageable since you can log in on any device, whenever you steal a moment to update your records.
Don’t be lax with your invoices
Running in circles around a difficult client, one who keeps forgetting to pay or loses track of your invoices after you deliver them, will harm your business. Everyone has bills to pay, and you have to manage your cash flow carefully so you don’t land in the red.
Be stricter with invoice collection, no matter the size of the project you’ve completed. Consider charging interest or late payment fees for missed deadlines to set the standard for your working relationship.
Under the Late Payment of Commercial Debts (Interest) Act, you may be entitled to statutory interest and fixed recovery costs on qualifying overdue business invoices.
An occasional slip-up is understandable, but repeatedly ignoring overdue invoices is not. It’s your duty, or your bookkeeper’s, to get the cash you’re owed. If not, those tiny holes in your finances will widen, and clients may assume they can be similarly off-the-ball with their payments.
Not assigning budgets to a project
We’re betting that contract sites aren’t always on your doorstep, and won’t necessarily have an array of tools ready when you clock in.
Contractors may have to budget for travel, protective clothing, special equipment, and overnight accommodation if there’s a lot of work to finish.
Set a budget for ancillary charges before a project kicks off. That way, you’ll be less likely to overspend. Tracking these costs as the contract progresses also helps you see how profitable the work really is.
The same forward planning matters when work slows down. Contracts don’t always come thick and fast, as we all know. Sometimes you’ll have a dry patch, particularly during holiday periods like August and December. Without some forward planning, it’s easy to get caught out with your workflow and cash flow.
Forgetting to keep expense receipts
HMRC expects you to categorise your expenses properly. Now is a good time to list your regular outgoings and identify what is eligible for tax relief.
Remember, some justifications rely on the nature of your work: for example, uniforms and safety wear may be allowable, but that fancy business suit won’t be.
Unless there’s sufficient evidence – paper or digital documents stretching across the tax year, aligned with your bank statements – you may struggle to support an expense claim if HMRC asks questions.
Stay proactive with receipts collection. You can find more information in our limited company expenses guide.
Muddled bank statements
Record purchases and keep corresponding bank statements to back them up as regularly as possible. Otherwise, you’ll get confused about what outgoings match the products or services you’ve bought.
The longer you put off your bookkeeping, the harder it will be to reconcile your bank statements with your expenses.
Thankfully, software like FreeAgent can store your receipts in the cloud and make bank reconciliation much easier. You can match payments to invoices and expenses, but you’ll still need to check that transactions are recorded correctly.
Tracking expenses can be an arduous task when you’re trying to match bank statements with flimsy receipts.
FreeAgent lets you photograph a document on your smartphone and upload it to a digital library, so you don’t have to dig through folders and drawers for evidence.
It’s also worth keeping personal and company spending separate. If you’re running a limited company, you need to record personal payments correctly, not treat them as business expenses.
Letting the paperwork get out of hand
If things have got a bit chaotic, don’t despair. You can whip even the messiest accounts back into shape by adding method to the madness.
Your first port of call should be collecting the paperwork that’s eluded you so far. Whether you’ve stashed something away, lost an initial copy, or just struggle with filing and cataloguing invoices, you need to go back to the admin drawing board.
Gather everything and separate it into clearly labelled folders, stored in date order. If most of your paperwork is digital, the same applies to documents and spreadsheets; don’t let ancient files clog a setup that should focus on current accounts.
Not giving your bookkeeping an occasional MOT
Like a car that’s been on the road for years, an MOT (so to speak) helps you spot where your accounts and bookkeeping fall short; even tiny mistakes can make a difference.
These can snowball over time, causing headaches when they spill over into a real issue.
Consider asking your accountant to review your records every six months, or more often if you prefer.
Financial circumstances can change from job to job, leaving you tangled in small print and financial jargon. It’s far better to have regular catch-ups with your accountant than discover a problem long after it’s arisen.
Need help getting your bookkeeping back on track?
Specialist contractor accountants exist for a reason. Our team can apply years of experience to your business, taking the pressure off you whilst helping you stay compliant and tax efficient.
At Bright Ideas Accountancy, we work with contractors and limited company owners who would rather spend their time running their businesses than wrestling with bookkeeping.
Whether your records need a thorough tidy-up or you want a more efficient way to manage your accounts, we can help.
Find out more about our accountancy services and FreeAgent software, or get in touch with Bright Ideas Accountancy to discuss your needs.
