Top 5 Bookkeeping Mistakes Small Businesses Make

For any small or medium-sized enterprise (SME) owner, the bedrock of success lies in managing finances effectively. But while you’re busy focusing on growing your business, marketing it and keeping great customer service, it can be all too easy to let your bookkeeping slide. And this is where simple errors can quickly snowball into significant financial and compliance issues. At Ellis & Co, we’ve seen firsthand the challenges that SMEs face. So to help you stay on track, our experts have come together to compile a list of the top five bookkeeping mistakes we see most often — and how you can avoid them:

1. Mixing Business and Personal Finances

One of the most common and damaging mistakes a small business owner can make is failing to keep business finances completely separate from personal funds. 

By using the same bank account for your business income and personal expenses (like your weekly food shop or a family holiday), it creates a significant headache when it comes to tracking your company’s financial health.

This mixing of funds, often called ‘commingling’, not only makes it difficult to assess your profitability, but it can also lead to serious problems during a tax investigation.

So, what you should do: 

Avoid this bookkeeping mistake by opening a dedicated business bank account and using it exclusively for all business-related income and expenditure. This simple step is fundamental to accurate financial reporting and maintaining a clear audit trail!

2. Not Reconciling Your Books Regularly

Bank reconciliation is the process of matching the transactions in your accounting records against your bank statements. 

It’s a vital health check for your finances, so as to confirm that the numbers in your books are accurate and complete. However, failing to reconcile regularly (or at all) means you won’t catch potential bank errors, unauthorised transactions or even discrepancies in your own record-keeping. 

This can then lead to an inaccurate cash balance, flawed financial reports and poor business decisions based on faulty data.

So, what you should do: 

Seeing as you now have a dedicated business bank account, set aside time each month to reconcile your bank and credit card statements with your bookkeeping software (Some of our favourites are Xero or QuickBooks!). Once you’ve done this, it ensures your financial records are always a true reflection of your cash position.

If you don’t know where to start with accounting software, check out our blog on “How to Choose the Right Accounting Software for Your Business”!

3. Poor Record-Keeping of Expenses

“Where did that receipt go?” is a question that many business owners ask themselves. 

Though it may seem inconsequential, failing to diligently track and categorise every single business expense is a costly error. Without proper records, it means you can’t claim all the tax-deductible expenses you’re entitled to, and meaning you could end up paying more tax than necessary!

Moreover, if HMRC ever launches an enquiry into your tax affairs, a lack of proper receipts and invoices to back up your expense claims can result in penalties.

So, what you should do: 

This mistake is avoidable, which is why we recommend using modern accounting software with mobile apps that allow you to snap a photo of a receipt the moment you receive it. 

This creates a digital record instantly and minimises the risk of losing it. Therefore, it ensures all your expenses are categorised correctly and gives you a clear picture of where your money is going.

4. Falling Behind on Invoicing and Chasing Payments

We’ve said how managing finances is the foundation of success, but your cash flow is the lifeblood of your business. So if you’re slow to send out invoices or lax about chasing up late payments, you’re directly impacting your ability to operate as a business. 

Basically, delayed invoicing means delayed income.

Besides that, many SMEs also make the mistake of not having clear payment terms on their invoices, thus leading to confusion and further delays from clients. With a disorganised approach to accounts receivable, it can quickly strain your finances, even if your business is profitable on paper.

So, what you should do: 

1. Invoice your clients or customers promptly after delivering a service or product. 
2. Clearly state your payment terms and due date on every invoice. 
3. Implement a system for tracking payments and follow up on overdue invoices politely but persistently.

5. Trying to Do It All Yourself

As a passionate business owner, it’s natural to want to keep a tight rein on every aspect of your company and have visibility on everything. However, when it comes to bookkeeping, the DIY approach can often be a false economy. 

With the time you spend trying to get your head around complex accounts, chasing receipts and reconciling statements, it becomes the time you’re not spending on growing your business. Not only that, without a professional eye, you might miss out on valuable tax efficiencies or fail to spot financial red flags until it’s too late!

So, what you should do: 

Firstly, it’s to recognise the value of your time and expertise. While handling the books yourself might seem like you’re saving money, it can cost you more in the long run through errors and missed opportunities. So this is where professional help becomes invaluable. 

If you find these tasks are taking you away from your core business, it might be time to consider your options. As we’ve detailed in a previous post, there are many key benefits of outsourcing your bookkeeping to an expert bookkeeper.

Stay Ahead of Your Finances!

By avoiding these common pitfalls, you can build a strong financial foundation for your business, thus ensuring you have the clarity and control needed for long-term growth.

If you’re struggling to manage your books or want to ensure you’re doing things right, our friendly team of experts at Ellis & Co is here to help. Here’s what our Director, John Farrell, mentioned:

“Many business owners are brilliant at what they do. However, the most common mistake we see is them underestimating the value of their own financial data. The books are not just a legal requirement; they’re a vital source of intelligence. So, neglecting your bookkeeping is like trying to build a house without solid foundations. Sooner or later, cracks will appear, whether it’s in cash flow, profitability or securing investment. And at Ellis & Co, our goal is to provide that solid foundation and give businesses the financial clarity they need to succeed.”

Get in touch with us today to see how I can grow my business with financial clarity!

About Ellis & Co

Ellis & Co is a leading accountancy firm specialising in bookkeeping, accountancy & audit, payroll, tax planning and business advisory services. We work with a diverse range of businesses, from start-ups to established companies, ensuring they have the financial clarity and support they need to succeed. With our team of experienced accountants based in Chester and Wrexham, we are proud to offer personalised solutions that help businesses succeed.