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As an accountant, you have a unique responsibility to your client’s businesses –– including making and saving them money wherever possible. If you make mistakes or use poor accounting methods, you might cause more damage to a small business than you realise.
This article will look at seven accounting mistakes you should avoid so that your client won’t lose any money and get the most benefit from your services:
- Not tracking expenses
- Uncategorised transactions
- Not keeping documents long enough
- Missed payments
- Not reconciling accounts regularly
- Incorrect budgeting
- Assuming profit equals cash flow
Not tracking expenses
One of the biggest ways accountants can lose their clients’ money is by not calculating their total expenses properly. It’s crucial to know what they can and cannot use as a tax-deductible business expense so that you can maximise the profit they walk away with. There could be additional expenses in their industry that you don’t know are acceptable, so always do your research.
There has to be some organisation on the client’s part, too, as they must provide suitable receipts for all purchases, especially expenses that will require proof to HMRC. You could always recommend software to the client that helps them stay on top of expense receipts, such as Countingup.
The Countingup app features a notification to remind the user to take a picture of every purchase receipt, making sure no transaction goes unrecorded. Without such proof, your clients could end up paying more tax than they should.
Ensuring your client has separate business and personal accounts is the first thing you should set straight as their accountant. Not only will it reduce the admin they need to do, but it will make it much simpler for you as the accountant to manage categorising transactions.
Every item in and out of a business bank account should be monitored. Being able to separate each transaction into different categories will help you organise the finances in a more detailed way. This will allow you to spot where your client is spending too much and help you create detailed reports that allow them to run their business more efficiently.
Not keeping documents long enough
In the UK, any self-employed person must keep their records for five years minimum. If your client is not aware of this, they may incur charges and larger tax bills if they cannot provide records when asked. As their accountant, make a point of helping them create a useful record system to save them money in the long term.
If you are inconsistent with your payment processes for your client, you may find that you can cause them to lose money. It’s good accounting practice to pay supplier invoices when they are due and ensure that all unpaid customer invoices owed are chased up and paid to your client. This means that your Accounts Receivable and Accounts Payable will be in the correct order for any cash flow or balance statements that you are preparing.
If you do not use a consistent system for this, and your client does not have the complete picture of their debts and debtors, it could mean that payments are missed. Missed payments could lead to charges from suppliers, or loss of revenue from customers who haven’t paid.
Not reconciling accounts regularly
Reconciliation is the process of checking that an account balance that you have listed on your books is accurate and correct. When companies don’t reconcile on a weekly or monthly basis, a lot of small mistakes and errors could go unnoticed. By solving the problem early, you’re making sure it doesn’t get out of hand.
You can avoid these mistakes by reconciling regularly and using software that has a reconciliation feature to make it more efficient. Some advantages of reconciling include:
- Knowing how much cash or credit that you have available
- Identifying fraudulent activity easier
- Spotting banking errors
- Quickly find out if a customer’s payment didn’t go through
If you are not providing the correct reconciled totals for your client, they may have a skewed view of their business’s financial health. This means that when they budget for projects or for business growth, they may budge too much or not enough to see a return on their investments. This could affect their ability to trade, their cash flow and could significantly reduce their profit if they are making ill-informed investments based on incorrect figures.
Assuming profit equals cash flow
Including income in cash flow or revenue totals too early can come back to bite you later on. Doing this can distort the businesses’ financial health and give your client the wrong idea about how much cash flow they have for other activities.
Let’s use an example: your landscaper client has won a project that will bring in £10,000 after a month of work. It’s going to cost the client around £8,000, plus labour, to carry out the project, so you might record £2,000 profit straight away.
However, this could cause major issues. Unforeseen issues in getting hold of materials and machinery, like during the Coronavirus outbreak, means that the project goes on much longer than the predicted month. Due to the scarcity of the materials, the costs may also increase, meaning the final invoice will not become revenue until much later than anticipated.
Doing this could mean that the client’s cash flow and income could be massively affected by your premature recording of profit.
Smarter collaboration with Countingup
You can save your practice time on manual admin and help your clients keep organised records with Countingup’s free accounting software. It’s built specifically to help you manage your self-employed and sole trader clients.
The Countingup app automates time consuming bookkeeping admin for your clients so they can focus on running their business – and send you accurate, structured data to work from. With instant invoicing, automatic expense categorisation and cash flow insights, your clients will be able to confidently keep accurate bookkeeping records everyday.
Our accounting software is MTD-compatible and full of features for accountants to review and manage client accounts efficiently, with direct access to their real-time organised data. Find out more here.