10 Common Book-Keeping Misconceptions
Bookkeeping is one a aspect of business that everyone I come across seems to dislike with a vengeance. Personally, I cannot understand that because I love bookkeeping!
However, over the years, I have continually bumped up against people who have the following “points of pain” with bookkeeping:-
1. Keeping up to date!
What a bore it is. There is never enough time to do everything my growing business needs without worrying about the books! All I need to know is who owes me money! I am only forced to keep records because I am an unpaid tax collector for the government! My accountant deals with the books at the end of the year - I just cannot be bothered! I am sure the VAT comes around more than every 3 months! I just guess at the figures each VAT quarter - I have been in business 10 years and never had an inspection so why bother doing it properly?
Can you relate to any of these comments?
2. Meeting deadline!
I am never sure which deadlines are relevant to me? I cannot believe I had just been fined by the VAT - they said my last return was late but I posted it on the last day of the month! I am so confused by all the deadlines I have to meet I have no idea which ones are legally binding and which ones are not. I thought I paid the wages deductions at the end of the tax year when the forms are sent to the Tax Office - is that not right? The chap at the pub last week said I could ignore a reminder from the Tax Office about the wages deductions - they do not really bother with small amounts - but now I am being taken to court!
Are you confused by deadlines?
3. Current information!
I keep all the relevant stuff in my head - I don’t need to write it all down! I am not VAT registered so I don’t need a full set of books! The only person interested in my business figures is the Tax Office - why should I tell them everything? I only get things up to date when the bank manager insists on reviewing my overdraft - I can never understand why he thinks things are so bad all the time! Only big public companies need detailed books - right? I wish my books were up to date - I might be able to see why I never have any money - but how do I get them done?
Do you know how your business is doing every month cash flow and profits wise?
4. Visits and Inspections!
I have just had a letter from the VAT office - they are coming next week to do a full inspection - what do I do? Can the Tax Office really demand all my records, bank statements - everything - what can they get from just the bits and pieces I keep? Why would the Tax Office want to see my wages records - I only have half a dozen casual workers and they all get paid cash so I do not bother keeping track of everything? I have just been through a VAT visit and I can’t believe the amount of VAT they say I owe them - where am I going to get that kind of money? All my dealings are in cash so I do not have to produce anything to the Tax Office if they ask because they cannot prove anything if it isn’t written down!! What is a capital statement? The Tax Office said as I have no records they will build up my income from what I spend - how much do I put down?
Not had an inspection yet - you will - sooner or later!
5. Defence against H M Revenue & Customs Assessments!
I have just been through a Tax enquiry and they reckon I owe a massive amount of tax - my accountant had been niggling at me for years to get my books in order but I just thought he wanted more money out of me - now I face bankruptcy because I have no records to fight the additions the Tax Office have estimated! My business is all cash and I never use a till because tills leave traces - why do the Tax Office insist my takings are under-declared - why do they not just accept what I say and go away?
Tax enquiries are the way the government polices the Self Assessment regime
6. Free time!
I do not bother with proper books because it interferes with my family and social life - no-one looks at them anyway - my accountant just deals with what I give him! I used to be good with my books but as the business grew I just could not keep all the plates spinning!! I just have to be in the Pub by 5pm otherwise I miss the in crowd - books do not really matter anyway! My holidays are much more important than boring bookkeeping! I simply will not miss any of the matches - I paid good money for my season ticket!
I value my free time too - but bookkeeping cannot be ignored
When the business was small the books were easy - but as it grew things became more complicated and I just could not cope any more so I leave it to the accountant at the end of the year! I get in a mess every time I try and use this bookkeeping package my accountant recommended - it cost an arm and a leg but I just don’t know how to make it work and their training courses are so expensive as well! I used to use a computer package but they kept sending me updates and one of these totally messed my books up - so now I do not bother any more - if the Tax Office insist on looking at my stuff perhaps they can make more sense of it then I ever could!
How does anyone choose a bookkeeping method that is right for them?
8. Helpful spouses!
My business grew very quickly so I got my wife to do the books - I thought she was handling it - but when the bank manager came on the phone about the account being so overdrawn - I found out she had not bothered - now what do I do? I have not got time to sort it all out! My partner would rather be at the shops than doing the books - I thought the books were ok! My husband is an accountant so I do not bother with books for my hair salon! My wife knows a bookkeeper and told me she would pass everything over to them - but now I cannot contact them and they have all our stuff! My husband put last years records on the bonfire - he thought they were just old bits of rubbish, what do I do?
Your books are the most valuable part of your business - protect them!
I really want some help with my books - but where do I find a bookkeeper? How will I know they are any good? Will a bookkeeper end up costing me money because they do not know the business like I do? I do not really want anyone to know all my business secrets! How will I know if they make a mess of the job - I don’t understand what they are doing! I cannot afford a bookkeeper!
A good bookkeeper is an invaluable asset to any business!
Having a bookkeeper is like having a leach sucking money out of the business for no benefit! I am sure my bookkeeper works for the government - the VAT seems to grow every quarter! My bookkeeper keeps hassling me for receipts - why does she need them - I never did!! My tax bills will rocket if I use a bookkeeper and all the sales are declared! Where do I find a “bent” bookkeeper that will keep profits and tax low? Isn’t having the accountant knock some stuff together at the year end good enough? I just do not feel right declaring it all
Do you know any others?
It is true that most accountants never want you to question your bookkeeping because they would like to keep making excellent money from you whilst they sort out the mess each year. If they also recommended a computer bookkeeping package to you as well, they probably made money on that too, both on the sale of it to you and also when you ring up asking simple questions about how to do this and that with it.
The trouble is, most business people just do not realize how valuable an excellent set of records is to them. Or how their books are the cornerstone of their defence when subjected to an in-depth Tax or VAT investigation.
Let me explain those two important points in a little more detail.
Your business records are, if kept well, are the most valuable asset your business has. For example:-
1. They hold the key to how profitable your current activities are
2. How important each of your customers are with their order size and frequency of buying
3. How much money you have tied up with your customers who have not paid yet
4. How much money you are committed to paying your suppliers
5. All contact details of everyone you deal with are in there
6. The indications of how each of your employees are performing are in there.
7. The exact amount due in respect of VAT can be seen building day by day - so no nasty shocks at the end of the quarter!
8. Instant reports of profits/stock levels/cash flow/debtors/creditors etc., available at the touch of a button
9. Impress the Bank Manager when he calls for this detail or that report and you can produce it instantly
There are many more factors but these give you a taste of why records are so valuable - and never more so than when you want to sell the business and get the maximum money for it because everything the buyer needs is so clear and accessible.
An excellent set of records is your best defence against an in-depth Tax or VAT investigation because they are so complete, up-to-date and straightforward. The less opportunity you leave for gaps or omissions to occur in your records, the harder these civil servants will find it to claim your records are understated and incomplete.