To be successful in business its vitally important to have a good accountancy system in place. Knowing your numbers is essential for you to track your progress and to ensure your business is profitable.
Most small business owners hate doing accounts – we know this because they tell us! For many it’s the most boring, mundane job they must do to run their business and consequently many do not have a system for doing their business accountants efficiently and therefore leave doing their tax returns to the last minute. It also means they do not know the trading position, which will reflect in the progression of the business.
If you are a small business owner who finds themselves working late in the day or weekends to keep up with the accounts and do not know at a click of a button your figures in your business then you need to start thinking how you can work smarter with your book keeping.
Keep your business finances separate from personal finances
We all hate paying bank charges but there are ways around this. Sole traders (not a limited company), can sometimes use normal bank account for business, transactions with all the better terms that involves but check your terms & conditions – some banks won’t allow this.
Most banks offer the first 18months- 2 years for new business banking customers. So, you could avoid charges by simply switching banks when the free banking ends. Money supermarket shares some tips here on the best banking deals and tips to save on bank charges,
If you have an FSB membership you can qualify for free business banking with the Co-Op, worth checking as there are a lot of other benefits too.
Keeping your business finances separate is important as it helps you to be clear which expenses relate to what and should you ever get a tax inspection this will make things much easier.
Choose an online accounting cloud software package
Using a cloud-based accounting software package means you have immediate access to your financial data. There is a huge choice of online cloud bookkeeping software packages on the market. Which one you choose will depend on what your business does. We recommend Xero because we think it is user friendly, you can access your accounts anyway and you can sync it with payment portals. Plus, you can quickly get a picture of how your business is performing, payments which are outstanding and your day to day bookkeeping tasks will be reduced dramatically. You can also use this to monitor your orders and customer activity, vital knowledge about your products or services.
HMRC plans to make all business report their tax information digitally, companies who are VAT registered are already using this system. It makes sense to start using an online package now to be ready for this change. Find more about this here.
Get into a bookkeeping routine
Ensure at least once a month you ensure all transactions have been recorded, payment owed to you have been made, you have invoiced your clients, enter your expenses into your accounting system and reconcile your bank statements. If you find you are spending a lot of time doing this, it might be more cost effective to use a bookkeeping service. Discuss this with your accountant who can advise you, many accountants offer this service. Time spent doing your books could be time spent building your business. Outsourcing activities like bookkeeping often makes more sense.
- All invoices are raised
- All receipts and expenses are up to date
- Ensure supplies are paid
- Reconcile your bank account
- If you have staff you will need to run your payroll
- Chase any unpaid invoices from customers
- Ensure all receipts and expenses are up to date for the month
You may have a VAT return to submit
Review your business and how it is trading
Apps to support your bookkeeping
Are you always losing receipts? Or do you find the job of entering them online boring and time consuming then there are 2 apps we recommend both are very easy to use. Check out Auto Entry or Receipt bank
If you use your vehicle for business and find keeping track of your business mileage difficult then try using an app called MileIQ. It will save you a lot of time by logging the trips automatically. You just have to categorize them by swiping left for Personal and right for Business
Cash in no longer King
Try and get all your customer to pay via a digital payment. This makes tracking payments easier and simpler. You do not want to be holding large sums of cash on your premises anyway! HMRC regularly target cash-based businesses as they know many do not declare their full income or keep good records. If you are a cash-based business keep very clear, detailed records and receipts.
Create a filing system
Have a folder, box file or some means of creating a filing system for paperwork relating to your business finances. Filing monthly receipts, invoices in chronological order for most businesses works best. Keep your records safe. Sole traders must keep their paperwork for at least 5 years after the 31st January submission deadline of the relevant tax year, as if you do get an inspection HMRC may ask to see it. Here is a guide from HMRC for sole traders about what records you must keep.
If you are a Director of a limited company, you can be fined £3,000 for not keeping adequate business records and even be disqualified. Records should be kept for at least six years from the end of the last company financial year which they relate to.
In both cases, if paperwork is missing, be sure to inform HMRC that you’re using estimated or provisional rather than actual figures.
Our overall advice is firstly sit down with your accountant, discuss a system which works for you both. Ensure you get into a proper routine and review your business finances on a regular basis. This way any issues or problems can be picked up and quickly corrected.
If you aren’t using an accountant- why not? They are experts in tax and most accountants will pay for themselves in the savings you make on your tax bill. Plus, by using an expert you know you are paying the correct tax! If you want some initial free advice contact us.