If you’re starting a new business, then the bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.
However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?
More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.
Every year, your business accounts will need to be completed.
If your business is operating as a limited company, you will need to submit your company accounts to Companies House.
If you are self-employed, your business accounts will be used to calculate your self assessment tax liability.
Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.
It might sound complicated, but take it one step at a time and it’s actually quite manageable.
If you’re really struggling to stay on top of it all, there are plenty of small business accountants and professional book-keepers who will be happy to help. So, even if you’re terrified of numbers, there’s a solution out there for you.
Should you do your own small business bookkeeping?
That really is up to you. In the early days, when your bookkeeping requirements are relatively simple and there isn’t the money to outsource the work to an accountant, you may choose to take on this task yourself.
This can be a worthwhile decision because in the process of ‘doing the books’ you can learn an awful lot about the business. It’ll also help you save every penny to grow your business.
There are also some drawbacks associated with doing your own bookkeeping – what would take a qualified accountant half an hour could take you the best part of an afternoon.
At some point the decision about whether to outsource this task will boil down to a simple time and cost comparison between the time it takes you to do the job, and the cost of hiring a specialist. After all, your time does have a value, and three or four hours away from your business every week is a high price to pay.
Another disadvantage of maintaining your own financial records is the risk of failing to meet all your legal obligations, simply because you are unaware of what is expected. Then there are the potential costs of missing out on tax deductions you didn’t realise were available.
Basic bookkeeping for your small business
If you do decide to go it alone, the bookkeeping requirements for sole traders and limited companies are quite different, particularly when it comes to your year end accounts.
However, this small business bookkeeping checklist can serve as a guide to the daily, weekly, monthly and annual tasks you need to complete to keep your business on track. Cover all these bases and this will help keep your business’s financials in good shape:
Daily bookkeeping tasks
Check your cash position
Do you have enough cash in the business to cover outgoing payments?
Weekly bookkeeping tasks
Prepare and send invoices
This can be a time consuming process but it’s one you need to complete to keep a steady flow of cash coming into the business.
Record your transactions
Keep a record of each transaction, whether it’s in an Excel spreadsheet or using specialist software. This should include money coming in from customers and payments made to employees, suppliers, HMRC etc.
File documents and receipts
Keep a hard copy of all the invoices you have sent during the week and receipts for all the cash payments you have made.
Review the ‘payment due’ dates on invoices from any unpaid suppliers and make the payments to avoid any late payment penalties. You may also choose to take advantage of early payment discounts if available.
Review your cash-flow
Check your cash-flow position to make sure you have enough cash in the business for the coming weeks and months.
Monthly bookkeeping tasks
Run your payroll and make the necessary payments to HMRC
You’ll have to report your employees’ payments and deductions to HMRC and pay HMRC based on your reports.
Review incoming payments
Are there any late payments you need to collect?
Check your bank statements
Review where money is being spent and check for fraud, banking mistakes etc.
Review monthly turnover/profit
Compare performance with past months to see if the business is growing.
Review outgoing payments
Make sure all payments that were due that month have been made.
Make advance payments on your VAT bill if you do so on a monthly basis
Quarterly bookkeeping tasks
Make advance payments on your VAT bill if you do so on a quarterly basis
Annual bookkeeping tasks
Annual accounts for sole traders
Sole traders do not have to file annual accounts. However, you will need to keep accurate accounting records so you can complete your self-assessment tax return at the end of the year. You will then have to pay income tax and National Insurance Contributions on your earnings.
Annual accounts for limited companies
The annual accounting obligations of limited companies are more complex. Company accounts must be filed every year with Companies House within nine months of your accounting reference date.
If your turnover is less than £6.5million, you can file abbreviated accounts. These will only include a balance sheet and notes. However, you will have to prepare full statutory accounts for shareholders and HMRC.
Your company’s accounting period will determine the deadline for filing your company tax return and paying corporation tax.
Small business bookkeeping tips and advice
If you do decide to go it alone, here are a few tips to make your small business bookkeeping easier…
1. Use specialist accounting software
Specialist accounting software can make the whole process a lot less painful. Do your research and trial each package first to find the right solution for you.
Start by reading ByteStart’s guide on How to Choose the Best Online Accounting Software for Your Business.
2. Get free help from HMRC
HMRC offers free webinars and videos that can help to bring you up to speed.
3. Budget for tax
It’s a pretty obvious one this, but make sure you budget for tax. Put 25-30% of income aside so you can pay your tax bills as they fall due.
4. Claim all legitimate expenses
It’s well worth spending some time reading up on the allowable business expenses. You should also keep all receipts, even for small expenses like printer ink and stationery.
This article has been provided exclusively to ByteStart by KPMG Small Business Accounting, specialist accountants for small businesses.
Last updated - 9th October, 2019