If You’re Doing Your Own Bookkeeping, You May Be Making These Mistakes…

When starting a recruitment agency, the main focus should be on making as many placements as possible and generating profit.  As the business grows, Directors will likely decide to invest in staff and the future growth of their agency.  Often one of the lower priorities on the list is looking after the books and financial records until they absolutely have to and the thought of paying someone to do these tasks means cutting into that all-important profit.  This usually means that a recruitment director will decide to try and take this burden on themselves and look after the invoicing, credit control, payments and bookkeeping, whilst relying on an external accountant to look after the VAT returns and year-end accounts.

However, having someone who can look after your bookkeeping can alleviate the time spent doing this and allow you to concentrate on recruiting – likely generating the profits that will pay for this service and then some.

TBOS has helped many recruitment agency directors who decided originally to look after their back office and bookkeeping but made some major mistakes which could have meant their agency could have made major losses or been in trouble with HMRC.  Below is a list of some of the mistakes that we see all too often:-

  • The VAT Headache
    Understanding VAT can seem like a minefield, especially when you have not had to deal with it previously. So when it comes to selecting which VAT scheme you should be on, how much VAT you have charged and which expenses have VAT on that you can reclaim it can seem like a major headache.  TBOS has found that some directors have developed some weird and wonderful ways of accounting for VAT, including accounting for VAT on all expenses such as train tickets, bank charges and entertainment costs.  This allows them to have a large VAT refund and higher profits but will cause problems if the agency is audited in the future.  Luckily TBOS has managed to intervene at the right time to correct these errors and ensure that the agency makes payment for anything that has been previously missed.
  • Balances Not Balancing
    Businesses using accounting software such as Sage and Xero believe that these programs will make the process of running their own bookkeeping easier. However, there needs to be a certain amount of understanding of the program and also accounting itself in order to use these systems effectively.  One of the main issues TBOS has inherited is that the bank balances or invoice finance ledgers do not match what is shown on the accounting software. Although this may be the result of one or two missing transactions, if this has been ongoing over time then it usually means trawling through many records to identify the issue or issues and may have an impact on retrospective accounts or statutory returns.
  • Blurring the Lines Between Your Business and Personal Accounts
    Sometimes when running the bank accounts of a business, the lines between business and personal can intermix and before you know it certain personal costs are being paid through the business bank account. Whilst this is allowable as long as the expenses are accounted as Directors Loans, this is not advisable should HMRC want to come and audit your business records.  At that point, HMRC not only knows your business activities but also your personal ones and can use these against you should you fall behind with statutory payments.
  • What’s Intermediary Reporting?
  • The intermediary reporting is the one process that seems to have been a question mark during a large number of our agency take-on’s over the past 2 years.  When we mention this the reaction is often “what is the Intermediary reporting?” or they will say my accountant or my pay-and-bill company deals with that.  But how can you be sure this has been completed? It may be that the information has been collated and is awaiting your final sign off – or that it hasn’t been completed at all. When taking on new agencies, TBOS has had to correct several ‘legacy issues’ surrounding Intermediary Reporting recently.
  • Not Entering Year End Journals Once Statutory Accounts Are Completed
    Once a company has had their year-end accounts produced by their accountant, the company bookkeeping records should be updated with a number of year-end journals so that the starting position for the new financial year matches the final position of the year just completed. However, if these journals are done 9 months after the year-end or not at all then the financial position throughout the new year may be skewed and show profits or losses when they are not there.  As accounting software does not talk you through these kind of processes and accountants may not explain what needs to be done with these journals, this could be an issue that continually worsens without being detected for some time.

TBOS looks after the daily bookkeeping for all of our recruitment agency clients which includes uploading client and candidate invoices, reconciling the bank and invoice finance balances on a daily basis, recording supplier invoices, processing expenses/ credit cards statements and accounting for any VAT along the way against HMRC’s rules.  Using that data, TBOS produces monthly management accounts for all agency clients so they understand their monthly and annual profit and losses, their liabilities with HMRC and their current position shown on their balance sheet.  The management accounts form the basis of discussions with our account managers on how our agencies can improve productivity and manage their overheads.  TBOS also looks after their VAT returns, intermediary reporting and year end statutory accounts so that all back office and accounting functions are handled so the agency director can concentrate on recruiting.

For more information on how TBOS can manage your back office and accounting processes, please contact our office.