Are you making any of these six dangerous accounting mistakes?

Are you making any of these six dangerous accounting mistakes?

As a legal business, do you update your “books” manually or rely on accounting software? DIY accounting might save you the immediate expense of a professional accountant or bookkeeper, but could be costing your business more in the long run.

Accounts, including those produced by software, are only as accurate as the figures fed into them. Without professional guidance, you risk overpaying tax, incurring penalties, disrupting your cash flow and misinterpreting your business’s financial health. Here we look at six common accounting mistakes that could be costing your law practice.

If you are currently taking the “DIY” approach to your legal accounts, contact us today to find out how we could save you time, money and worry.

1. Using your accounting software wrongly or using the wrong software

Accounting software can seem like the perfect solution to your accounting woes. Unfortunately, your software cannot stop you from entering incorrect data, using the wrong settings or misunderstanding the information it provides. When used correctly, it can be a useful financial tool, but used incorrectly may put your business at risk.

The first question you should be asking yourself is: “does your current accounting programmeet your needs?”. Creating workarounds to compensate for missing features increases the risk of mistakes being made more likely, and errors can compound over time. Unpicking complicated problems further down the line is likely can require professional input and considerable expense.

Remember, software cannot replace an actual accountant. At a minimum, you should ask a professional to review the accounts created using software to make sure everything is in order. They can also give you additional money-saving insights specific to your legal business that your software cannot provide.

2. Not recording cash expenses

It is vital to record your cash expenses meticulously. Otherwise, you may forget to account for them when it comes to filing your return(s). Not only will you be liable for additional tax than you should be, but you will also have an incorrect picture as to your company’s cash flow and future position.

Be systematic with your recording of cash expenses. Many business owners like to take a quick snap on their mobile phone straight away. Accounting programs often let you match the image with the transaction immediately.

If you do not record your cash expenses immediately, then you should ensure that you have a secure place to store all your receipts. Once a week, take photos or scanned copies and upload them to your expenses folder or accounting program. That way, you remember to record them, and you have evidence of your expenses for HMRC.

3. Reconciling receivables late

When you receive a payment, you should reconcile it against its receivable promptly. If you do not, your revenue account can quickly become difficult to reconcile. This could lead to expensive mistakes, such as overlooking unpaid invoices.

Unreconciled payments make it impossible to view your finances clearly. Without a clear sense of your cash flow, you could make decisions that damage your business’s health, such as the delay of paying a supplier, not investing in new equipment when it is needed or accumulating unnecessary interest on a loan by not paying it back as soon as you could.

Moreover, when you come to tidy things up, wading through old invoices and payments is time-consuming. You could also make mistakes reconciling payments made a long time before. Save yourself time and a headache by reconciling receivables on time.

4. Blurring business and personal finances

If you own or run a legal business , you must clearly delineate your business and personal finances. You should have a separate business account, and any money you take out of the business or put into this account must be recorded properly.

For instance, if you loan money to the business from your personal account, it should be appropriately documented and a repayment plan put in place. If you put a business expense on a personal credit card, it should be recorded and evidenced.

Overlapping your business and personal finances increases the risk of mistakes in your accounting process. Moreover, a tax audit or other type of financial investigation might decide to probe your accounts more deeply, in case there is fraud to be uncovered.

Investigations are stressful, and could reveal other accounting issues or errors that you will be expected to explain.

All in all, it is best to keep your business and personal finances separate. Where this is difficult – for example, start-ups – ensure you keep thorough records and have a professional check them over.

5. Not using business reports properly, or at all

Accounting software can generate a host of useful reports offering valuable insights into your business. They can help you to make sense of your business’s financial health and facilitate accurate predictions about sustainability, growth and investment plans. This information can help you to prepare for financial blows, such as a market downturn or the loss of a major client, as well as the abvility to seize development opportunities.

However, if you produce or interpret reports incorrectly, you could create a skewed picture of your position. Relying on misinformation could cost your company dearly. Likewise, if you do not use reports at all, you are leading your company without sufficient financial direction, possibly toward disaster.

When used correctly, reports are powerful tools for making better business decisions. Make sure you are getting the most out of them by reviewing software-generated reports with a professional accountant or by asking an accountant to produce reports for you. Regular reports – weekly, monthly and annually – will give you a comprehensive picture of your position.

6. Relying on generic advice

Every business’s accounting needs are unique. As a legal business, your requirements will be specific to your field, client base, location, size, employee circumstances and more. Just like law, there is no one-size-fits-all solution to an individual accounting situation.

It is too risky to rely on generic advice. Whilst quick fixes and a little help from Google might seem to get you by, you could be creating serious problems for yourself down the line. If you have taken this approach so far, talk to a professional as soon as possible. They can implement the correct processes and procedures urgently, ensuring your business is fully compliant and positioning you to take real control of your company finances.


Cashroom provides expert outsourced accounting services for Law Firms including Legal Cashiering, Management Accounts and Payroll services. Our mission is to free lawyers from the complexities of legal accounting by supporting the industry with accurate management information and allowing lawyers to do what they do best – practise law.

This article was submitted to be published by Cashroom as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.

Cashroom

http://www.thecashroom.co.uk/

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The Cashroom Ltd exists to deal with the day to day administration of a law firm’s finance function, ensure compliance with the Solicitor’s Accounts Rules, and provide firms with management information and Management Accounts. We provide the time and the information allowing solicitors to focus on their business.

The Cashroom provides a specialist accounting service to the legal profession, comprising an outsourced legal cashiering service, and an outsourced management accounting service. We now do this for almost 150 clients in the UK. Our legal cashiering service is delivered remotely by a team of qualified cashiers, working in our offices. We use our client’s own practice management system (there is no need to change system), logging on remotely to run their cash room, as if we were in the room next door.

We also provide an outsource management accounting service delivering management accounts and management information to law firms quickly and economically, often to firms who could not afford to employ a full time accountant. More importantly, we work with clients to analyse that information, helping them understand their firm’s finances more clearly.

Lawyers are not accountants and employing, supervising and managing a cash room, was a worrying prospect for many solicitors. Our Legal Cashiering Service takes away that worry, running and managing a firm’s cash room, on an outsourced basis, and ensuring compliance with the Accounts Rules.

And we usually do it for around two thirds the cost of running an accounts function in house.

Few small to medium sized firms produce the management information they need to run their business effectively. Few produce monthly Management Accounts, few have annual budgets, and fewer still track performance against budget on a monthly basis.

Our Accountants combine “best practice” from a number of firms to create a finance function, which produces Management Accounts and management information quickly and efficiently. The Cashroom produces annual budgets, monthly management accounts, monthly management information and cash flow projections. More importantly, our Accountants spend time with our clients making sure they understand the information, and what it tells them about their business.

And, again, we do it for a fraction of the cost of employing a Finance Director.

We also run a full outsourced payroll including auto-enrolment services for firms of all sizes.

Key Contacts:

If you are regulated within the English and Welsh market then please contact:

Alex Holt
T: 07817 420 466
E:  [email protected]

English Office
The Cashroom, West Lancashire Investment Centre, White Moss Business Park, Maple View, Skelmersdale , Lancashire, WN8 9TG
Tel: 01695 550 950

If you are regulated by the Law Society of Scotland, please contact:

Gregor Angus
T: 07875 598 593
E: [email protected]

Scottish Office, Livingston
The Cashroom, Craglea House, 7 Quarrywood Court, Livingston Village, Livingston, West Lothian. EH54 6AX
Tel: 01506 401 270

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