Many view bookkeeping as a monotonous task rather than an essential aspect of small business management.
However, regardless of your other talents and work ethic, understanding your financial health is crucial for sustaining your business. Additionally, proactive management of small business taxes, particularly in your first year, can save you future troubles.
This article will delve into strategies to transform bookkeeping from a daunting and time-intensive task into a more manageable and efficient process. We’ll discuss how adopting effective bookkeeping practices can significantly simplify your business operations.
Why does bookkeeping matter?
If you’re self-employed in the UK, you have to fill out a Self Assessment tax form every year for HMRC. This form reports how much you earned, and figures out how much tax you owe. Keeping your financial records neat and accurate is really important for this.
Keeping good financial records is also key to growing your business. It helps you show investors, partners, and banks how well your business is doing.
Even if you have an accountant, you still need to keep up with your bookkeeping, like keeping track of bills and expenses. Your accountant needs this information to properly handle your money matters.
Staying Ahead with Your Bookkeeping
Bookkeeping is much easier and takes less time if you do it regularly.
Even so, a lot of self-employed folks wait until the last day of the year to do their taxes.
How often you sort out your paperwork is up to you. A quick daily look or setting aside time once a week works well. If you don’t keep up with your paperwork, you might end up paying too much tax or, worse, get fined for missing deadlines.
Managing and Documenting Expenses Effectively
Bookkeeping experts often recommend using debit or credit cards over cash for easier tracking of spending. This method allows you to review your statements to see where you’ve spent money.
Having a separate bank account for your business is crucial. Mixing personal and business finances can lead to messy and inaccurate books.
Initially, using one card for both personal and business expenses might seem simple, but it becomes complex as your business expands. Determining whether a charge, like a £3.99 purchase at Tesco, was for business or personal use can be time-consuming and error-prone.
In some cases, paying for items personally is more straightforward. When using the company account, you must record each expense as it occurs. However, for personal payments, like train tickets, you can total the expenses and record them once a month in your books, instead of recording each individual purchase.
Keep in mind, HMRC may request to see your receipts, and lacking them could lead to issues. Since paper receipts are prone to getting lost or damaged, it’s advisable to scan and digitally store them. HMRC accepts digital copies, so photographing your receipts and organizing them clearly in a digital file or online drive greatly simplifies locating them later.
Effective Bookkeeping Management Strategies
- Sort Your Invoices: Update your accounts as soon as you get paid. Keep your invoices organized in four groups: ‘Sales Paid,’ ‘Sales Unpaid,’ ‘Purchase Paid,’ and ‘Purchase Unpaid.’ This keeps things tidy and saves you from digging through a mess later.
- Save for Taxes: A big mistake is not having enough money for your tax bill. To avoid this, put some of each payment you get into a savings account. That way, you’ll be ready when it’s time to pay taxes.
- Watch Exchange Rates: If you deal with money in different currencies, remember that exchange rates change. Record the exact amount that goes into your bank and keep all your receipts from trips abroad.
- Deal with VAT: If you need to handle VAT, you have to report it to HMRC using software that works with Making Tax Digital (MTD). Some accountants will ask you to use certain online accounting programs.
- Use Accounting Software: The best thing about online accounting software is how easy it is to put in and look at your financial data. Keeping it updated, which doesn’t take much work, helps keep your records straight.
- Regular Updates for Better Information: Keep your financial records up to date. This gives you a clear view of how your business is doing financially and helps you plan your budget and taxes better.
- Match Your Bank and Books: Regularly compare your bank transactions to your recorded expenses and sales. This is important for keeping accurate records and gets easier with online accounting software.
Adhering to these practices will not only streamline your bookkeeping process but also provide you with a solid understanding of your financial position, helping in making informed business decisions.
Selecting the Right Accountant
Keeping your books in order allows an accountant to help you with smart financial decisions. These decisions involve determining the best salary for yourself, selecting the appropriate business structure, and deciding on VAT registration.
When paperwork begins to hinder your business, consider hiring an accountant. Letting a professional manage your finances enables you to concentrate on running your business your way, free from the complexities of financial details. This approach streamlines your business operations and ensures expert handling of your financial matters.
Need help simplifying your small business bookkeeping and accounting? Contact us today!