Introduction

Starting a business is one of the most exciting and challenging things you can do. But as a founder, you’re often wearing multiple hats—sales, marketing, operations, and yes, accounting.

Unfortunately, accounting mistakes are incredibly common for startups and can lead to costly consequences down the road. The good news? Most of these mistakes are easy to avoid with a little awareness and the right tools.

Let’s explore five accounting mistakes startups make, why they’re a problem, and how to avoid them to set your business up for financial success.

1. Mixing Personal and Business Finances

Why It’s a Problem:

It’s tempting to use your personal bank account for business transactions, especially when you’re just starting out. But this creates a mess when it comes to bookkeeping and taxes.

• You risk misclassifying expenses.
• It’s harder to track your business’s actual performance.
• HMRC may question your records during an audit.

How to Avoid It:

• Open a dedicated business bank account as soon as possible.
• Use a business credit card for company expenses to keep things separate.

Pro Tip:
By separating your finances, you’ll also appear more professional to clients and lenders—it’s a win-win.

2. Not Keeping Accurate Records

Why It’s a Problem:

Poor record-keeping is a slippery slope to missed tax deductions, compliance issues, and financial headaches. HMRC requires you to keep detailed records for at least six years.

How to Avoid It:

• Use accounting software like Xero or QuickBooks to automate record-keeping.
• Digitise receipts and invoices with tools like Dext, so you don’t have to worry about losing paper documents.
• Set up a regular time each week or month to review and organise your records.

3. Forgetting to Set Aside Money for Taxes

Why It’s a Problem:

Tax bills can sneak up on you if you’re not prepared. Spending all your income without accounting for tax liabilities can leave you in a tough spot when the payment is due.

How to Avoid It:

• Create a separate savings account specifically for taxes.
• Set aside 20-30% of your income to cover VAT, Corporation Tax, and any other liabilities.
• Work with an accountant to calculate your expected tax bill and plan accordingly.

4. Overlooking Automation Tools

Why It’s a Problem:

Many founders try to handle everything manually—Excel spreadsheets, handwritten receipts, and manual reconciliations. This wastes time and increases the risk of errors.

How to Avoid It:

• Invest in accounting software like Xero, which can automate repetitive tasks like invoicing, reconciliations, and reporting.
• Use tools like GoCardless to automate payment collections, ensuring you get paid on time.

5. Not Reviewing Financial Data Regularly

Why It’s a Problem:

Your financial data holds the key to understanding your business’s health, but if you’re not reviewing it regularly, you’re flying blind. You might miss cash flow problems, overspending, or opportunities to increase profitability.

How to Avoid It:

• Schedule monthly financial reviews to analyse profit margins, expenses, and cash flow.
• Work with an accountant who can provide insights and help you spot trends or issues early.

Real-World Example: Avoiding Common Mistakes

Let’s say you’re a graphic designer running your own studio. Here’s how avoiding these mistakes can help:

• By opening a business account, you clearly see your profits and track tax-deductible expenses like software subscriptions.
• By automating your invoicing process, you get paid faster and spend less time chasing clients.
• By setting aside 20% of every invoice, you’re never caught off guard when your tax bill arrives.

Conclusion

Startups thrive on agility and creativity, but strong financial foundations are what keep them alive. By avoiding these five mistakes, you’ll save time, reduce stress, and put your business in a stronger position to grow.

Need help getting your finances in order? DAZE Accounting is here to simplify things and set you up for success.