Doing your own book keeping - a bad example
Doing your own books might seem like a good idea, until you get that phone call from your accountant asking you about that rather large invoice that doesn't seem to have been added to your sales figures....
This story was told to me by a rather bashful fellow networker at an event recently. The problem that this had caused wasn't so much the book-keeping, as the accountant was going thru this before doing the final accounts - but the fact that this particular invoice would have taken our unfortunate over the VAT threshold right at the beginning of the last tax year and of course as it had been missed, they had never registered for VAT.
No big deal? Register now right? Well that's fine apart from two things:
a) You can get a hefty fine for late VAT registration and
b) in this case, almost a full year's previous sales invoices should have had VAT added and didn't, so this poor guy had to go back over everyone's accounts for the full year. He should then have contacted all his clients to explain the error and send out an invoice for the VAT. However, the majority of his clients were individuals, not VAT registered companies so this would have put the price up 20% after the event. This was such a difficult position to be in that the poor guy decided he couldn't do it in most cases so paid over the VAT himself that he should have collected.
Did it stop there? No, to make things worse, he had also quoted customers in advance for the next 6 months - all of whom would also need to be contacted and told their bill was actually 20% more.
Long story short, this poor man had in effect worked a whole year for nothing...
A rather large tip here is to make sure you have a separate bank account for your business... then each month a bank reconciliation should be done to make sure no invoices or receipts have been missed. This should also give you some warning as to when you're likely to tip over the VAT turnover threshold (currently £85,000) and enable you to plan in advance for this.
In addition to this, it would be wise to have a chronological list of the sales invoices, numbered sequentially, so you can see if any invoices have been issued but not paid as the VAT is due on the date of the invoice whether or not it has been paid (unless you are using the cash VAT system but that's a different story)!
If you have an accountant and think this will therefore not happen to you - but you only pass them your books once a year for your final accounts to be prepared, this is not the case! Much better to have a monthly service (or weekly) to make sure you're constantly on top of things and disaster won't come knocking on your door like it did to this poor chap. It could save you a small fortune!