Few people start a new business so they can do paperwork. Spending time adding up receipts or pushing invoices around a desk is nobody’s idea of fun – unless you’re starting up as a book-keeper or accountant!
Unfortunately it’s a necessary evil and something you need to stay on top of in your new business. Being disorganised and putting off paperwork just isn’t an option.
Her Majesty’s Revenue & Customs (HMRC) will fine you if you’re late getting essential information to them. And the longer you leave it, the worse the problem gets. So here’s what every small business owner needs to know about book keeping.
Being on top of your book-keeping will also help you maintain a healthy cash flow within your business, and allow you to spot trends in your finances early on. That kind of information is invaluable as you grow your business.
Keep proper financial records
Your accountant will advise about what your business specifically needs. But in general you should maintain three sets of records. These are:
1. Cash book
The payments into and out of your bank account. Keep it up-to-date, and after a few months you’ll be able to use it as a forecasting tool rather than just a historical record.
2. Sales invoice file
If you use an accounting package, you can use them to issue and store invoices. If you do them manually using Word, keep a record on file. Store invoices in chronological order. Keep those which haven’t yet been paid at the front of the file to help your credit control.
Online accounting systems such as FreeAgent will upload scanned invoices to ‘The Cloud’, so you have no worries about losing your files if your store them locally.
3. Purchase invoice file
Get used to making notes on invoices about when you paid them and how (BACS, cheque, cash etc). File them in chronological order. This will make your life easier and keep your accountants’ bill down.
Get an invoice or receipt for everything you buy
Statistically, the longer you are in business, the higher your chances of a VAT or tax investigation. They’re normally nothing to worry about as long as you have a professional accountant on your side and all your paperwork to hand.
Get used to keeping a piece of paper for every transaction. If you buy something online print off the invoice. It’s easier to collect paper as you go along, rather than try to find it years down the line.
Keep your accounts clean – separate business and personal expenses
If you run a limited company, the business’s money is not your own – even if you own it 100%. As a director you can’t spend the company’s money on your own purchases, unless they are a legitimate business expense.
As a self-employed person you take drawings from your business, but you should 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 checking your bank statement every month. Apart from combating the risk of fraud or a mistake by your bank, you will gain a better understanding of where you are spending money.
Successful businesses have great credit control and are spend money smartly – make this a habit from day one.
Put time aside to do your book-keeping regularly
When you are starting out it’s tempting to leave your book-keeping until the evenings. But if you’re tired simple tasks will take longer, and you’re more likely to make mistakes.
If you need to tackle a job like this outside of working hours when you could be earning money, then consider getting up early one morning, or doing it on a Saturday morning. Make it a regular day to form a habit.
You may well find that using a suitable accounts software package takes much of the pain away. Some of the online accounting packages available let you have a free trial so you can try them out and see whether they suit you. Those offering a free trial include FreeAgent and SageOne.
Get help with your finances – hire a book-keeper or accountant
If there’s one area 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 they’re not proactive enough, fire them and find a new one through personal recommendation. Professional codes of conduct make it relatively easy to switch accountants.
If you are struggling to keep up-to-date with paperwork, consider hiring a bookkeeper to get your books in order on a regular basis. Not only will they reduce your accountancy bill, but they will potentially help you earn more money.
If you charge £40 an hour and can pay a book-keeper £20 an hour, shouldn’t you be out there working while they get your accounts straight for you? And remember an expert will probably be able to do it in half the time it would take you.
You should be able to find a local book-keeper without too much trouble by asking other business owners for a recommendation. Alternatively, the Institute of Certified Book-keepers has thousands of qualified bookkeepers on its books, and can put you in touch with one of its’ members near you.
More help on ByteStart
For more tips and guidance on accounting and tax matters, try some of our other guides;
- Bookkeeping – Staying on top of your company accounts
- How to choose an accountant for your small business
- ByteStart’s Guide to the main business taxes
- Tax rates for small business owners – 2014/15
- How are limited company dividends taxed?
- How setting up a salary sacrifice scheme can reward staff and lower your tax bill