Getting Bookkeeping Right For Your Owner Managed Business
Expanding or starting your own business is very exciting but also very time consuming. Maintaining your own financial records – “doing your books” – can seem daunting when you’re new to it and when there are so many demands on your time. Bookkeeping often gets relegated to the bottom of the to-do list, there are always seemingly more important issues to consider. However, it’s an essential part of running your business. Bookkeeping need not be complicated if you start off on the right foot. The following are my five top tips on getting your Bookkeeping right for your business.
1. Start keeping financial records from the beginning
Bookkeeping really is one of those things where if you do a little bit every day, you will always be in control. As soon as you set up your business, start recording all your costs and income. In fact, you may incur costs before you start up. These can still be deducted from your profits, which will reduce your tax liability.
One of the most common mistakes is to do nothing, the work then piles up and you get further and further behind, to the point where you never have time to catch up
Start recording everything from day one, keep up to date and make sure you know the dates your accounts, corporate TAX, VAT, PAYE, etc. are due. Late payments and returns can incur heavy fines and penalties.
2. Set up an Accounting System
Set up an accounting system from the start. This doesn’t have to be a sophisticated software package. In fact, you could start with a manual system, but it’s wiser to use an easy accounting system or use a computer spreadsheet, as at the very least, it does the adding up for you! Furthermore you will have something set out in a format that you can email to your accountant, which saves time and money when it comes to doing accounts or returns.
Agree the system with your accountant before you start your business, with the rise in popularity of Cloud Accounting, it may be possible for you to benefit from the information sharing features offered by these packages.
3. Set up a Filing System
It sounds simple, but you’d be amazed how many people don’t do it! Keep a separate file for the business Bank Account, which should contain all the Bank Statements, in date order, all lodgement slips and cheque payment details.
Use the following simple way of organising your purchase invoices:
- Have two files – one for paid invoices, the other for unpaid invoices.
- When you pay, write the date and method of payment on the invoice.
- Once paid, move it to the paid file.
- Keep both files ordered alphabetically by supplier name.
4. Number and file each Sales Invoice sequentially
Numbering your sales invoices sequentially means you will be more organised. It also helps you to keep track of dates by which invoices should be paid. Again, have two files for your sales – one for paid invoices, the other for unpaid invoices. This will enable you to identify all overdue invoices which will require some of your time to agree a collection date. This can prove critical for cash flow management.
5. Maintain receipts and records for all Business Expenses
The general rule is, you can claim for any cost incurred ‘wholly and exclusively for business’.
- Remember to keep all receipts for your business purchases – even the smallest costs, such as stamps, stationery, bus and train tickets etc.
- Record all your business trips and claim for these – even trip to the local post office in your car to send a business letter or parcel.
- If you use your home as an office, you can claim for a proportion of your domestic bills – including lighting, heating, internet and telephone charges.
Even relatively modest expenses can mount up, so keep a close record of every cent your business spends. Failure to account for certain expenses may result in paying more tax than you need to.
Whilst there is no exhaustive list available as to what you can claim, common sense should prevail when applying the ‘wholly and exclusively’ rule. If in doubt, speak to your accountant.
Getting your bookkeeping right should be seen as a priority for your business. Failing to maintain your books in a timely and accurate manner can lead to a loss of control of your business, which can ultimately lead to its failure. Having accurate and up-to-date financial information about your business enables you to judge its performance and perhaps anticipate and take steps to overcome difficulties.
If you are daunted by the task of bookkeeping or would like further assistance, please contact us here for a quote in relation to any of the areas above and we will be delighted to assist you.