Few people start a new business so they can do the paperwork. Spending time adding up receipts or pushing bills around a desk is not anyone’s idea of fun, unless you’re starting out as a bookkeeper or accountant! unfortunately, it’s a necessary evil and something you need to control in your new business. being disorganized and putting off paperwork is simply not an option. hmrc will fine you if you are late in providing them with essential information. and the longer you leave it, the worse the problem gets. Here’s what every small business owner needs to know about accounting.
Keeping on top of your accounting will also help you maintain healthy cash flow within your business and allow you to spot trends in your finances early on.
You are reading: How to keep the books for a small business
Being able to spot potential financial issues before they become critical is invaluable as you grow your business.
here is bytestart’s guide to accounting basics every new business owner should know. they are relevant whether you are operating as a sole trader or running a limited company.
keep adequate financial records
Your accountant will advise you on what your business specifically needs. but, in general, you must maintain three sets of records. these are:
1. cash book
payments going in and out of your bank account. keep it up to date and after a few months you will be able to use it as a forecasting tool instead of just a historical record.
2. bill of sale file
If you use an accounting package, you can use it to issue and store invoices. if you do them manually using word, keep a record in the file. Store invoices in chronological order. keep unpaid ones at the top of your file to help you monitor your credit.
Online accounting systems like freeagent will upload scanned invoices to the cloud, so you don’t have to worry about losing your files if you store them locally.
3. purchase invoice file
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get into the habit of making notes on bills about when you paid them and how (bacs, check, cash, etc.). file them in chronological order. this will make your life easier and reduce your accountants bill.
receive an invoice or receipt for everything you buy
Statistically, the longer you’re in business, the better your chances of a tax or VAT investigation. There’s usually nothing to worry about, as long as you have a professional accountant on your side and all the paperwork on hand.
get into the habit of saving a sheet of paper for each transaction. if you buy something online print the invoice. it’s easier to collect paper as you go, rather than trying to find it years later.
keep your accounts clean: separate business and personal expenses
If you run a limited liability company, the company’s money is not yours, even if it is 100% owned by you. As a director, he cannot spend company money on his own purchases, unless it is a legitimate business expense.
As a self-employed person, you take drafts from your business, but you must still maintain a separate bank account. keep your accounts clean by keeping your business and personal finances separate.
check bank statements
You should spend time reviewing your bank statement every month. In addition to combating the risk of fraud or error from your bank, you’ll gain a better understanding of where you’re spending your money.
Successful businesses have excellent credit control and spend money wisely; make this a habit from day one.
set aside time to do the accounting regularly
When you’re just starting out, it’s tempting to leave accounting for nights. but if you’re tired, simple tasks will take longer and you’re more likely to make mistakes.
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If you need to tackle a job like this outside of business hours when you could be making money, consider getting up early one morning or doing it on a Saturday morning. make it a normal day to form a habit.
You may find that using the right account software package takes away much of the pain.
bytestart’s guide to choosing the right online account software for your business will help you understand what to look for in an online account package.
We have used free agent for our own bytestart accounts, for more than a decade, it is highly recommended. click here for more information + a great discount for our visitors.
get help with your finances: hire a bookkeeper or accountant
If there’s one area where you shouldn’t skimp on professional help, it’s with your finances. A good accountant will save you more money than they cost. if they can’t or aren’t proactive enough, fire them and find a new one through a personal recommendation. professional codes of conduct make it relatively easy to change accountants.
If you’re having a hard time keeping up with paperwork, consider hiring a bookkeeper to sort your books on a regular basis. They will not only reduce your accounting bill, but potentially help you make more money.
If you’re paid £40 an hour and you can pay an accountant £20 an hour, shouldn’t you be working while your accounts are settled? And remember that an expert can probably do it in half the time it would take you.
You should be able to find a local bookkeeper without too much trouble by asking other business owners for a recommendation. Alternatively, the Institute of Certified Bookkeepers has thousands of qualified bookkeepers on its books and can put you in touch with one of its members near you.
last updated: June 15, 2022
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