Starting a new business is a huge venture, with much to consider and organize. It would be hardly surprising therefore if bookkeeping isn’t an immediate priority.
However, although the day to day running of your newly formed business may be all-consuming, it’s important to think about the practicalities of bookkeeping sooner rather than later. If you don’t have accurate financial records, you’ll have problems with not just making accurate and informed business decisions, but also with HMRC too.
Bookkeeping helps to form the basis of good business practice and if you get it right, can be a valuable tool for planning and strategy too.
Can I do my own bookkeeping?
If you’re a small business that’s just starting out, every penny counts and the thought of having to shell out for an accountant may make your bank account shudder. In some cases, it’s possible to do the bookkeeping yourself, particularly when the business is still young as the finances are likely to be far simpler.
For a fledgling business, the bookkeeping may be far simpler than you expect and there are undoubted benefits to carrying out the work yourself, such as saving money. However, there are some negatives you should also consider before you take the final decision.
If saving money is a big priority, then simply looking at expenditure is a false economy. To get a true picture you should consider other financial factors too.
A qualified accountant will be able to complete simple bookkeeping very quickly and the cost may be less than you budgeted for. By contrast, as an inexperienced bookkeeper, the same tasks could take you all day and while you’re doing this you won’t be free to do your normal work. This means that while you won’t be paying out for a bookkeeper, you also won’t be generating any income for your business.
Bookkeeping needs to be carried out regularly and every time you have your hear buried in the books, you could be losing out on profits. Only you can work out whether the loss of income for your time would cost you more than paying out for professional accounting services, but it’s something to think about.
An experienced accountant will be able to provide advice on the deductions you can make to legally minimise the amount of tax you have to pay. These tax-deductible expenses can be complex and difficult to navigate if you don’t have professional financial expertise. Doing the bookkeeping yourself means you could end up losing out on potential tax deductions.
Finally – and potentially the most problematic – is whether you’re fully aware of your financial responsibilities for reporting purposes. Ignorance is no excuse in the eyes of the law, and not meeting legal obligations because you didn’t know about them won’t stop you landing in hot water.
What information would I need to provide?
Although there are certainly drawbacks which shouldn’t be ignored, doing your own bookkeeping might be possible. It can help to provide a greater understanding of the business model and how you’re operating, highlighting the areas where you’re losing money and those where you’re reaping big rewards.
If you decide to give it a go, you might be wondering about the type of information you’ll need to provide. As a minimum, you’ll need to complete annual accounts and make tax returns. If you’re a limited company or registered with Companies House, you’ll also have to log annual returns here too. These annual statements should be based on the core information taken from your general ledger and other sources of data and include employee salaries, sales, expenditure plus other financial transactions.
It is entirely possible to carry out the bookkeeping yourself but if your head is whirling with all the information, or you begin to struggle there’s lots of professional help available. A number of accountants and bookkeepers specialise in working with small businesses so even if finance isn’t your strong suit, you’ll be able to get the help you need.
Bookkeeping for business beginners
If you decide to go for it and do your own bookkeeping, you’ll need to go right back to basics and make sure that you understand the requirements which apply to you. There are different forms of businesses, such as sole traders, partnerships and limited companies and the requirements for each vary significantly. This can be particularly relevant when you’re preparing year-end financial statements and accounts.
However, that aside, there’s a number of different bookkeeping tasks which should be performed on a daily, weekly, monthly or annual basis. The exact frequency may vary slightly depending on the size of your business but the checklists below will provide a general guide about what to do and when:
Daily
- Check for outgoing payments and whether you have sufficient cash to cover what’s due.
This is the minimum which should be done every day. If your business has a greater volume of transactions, you might find it useful to break down some of the weekly tasks and do these daily instead.
Weekly
- Check the position of your cash flow to see if there’s enough to cover upcoming expenditure both in the short and medium term
- Create and send invoices which are due. Although this may be an onerous task don’t be tempted to delay this. Prompt invoicing ensures a steady flow of revenue to the business
- Record all the financial transactions carried out. Most businesses either use a spreadsheet or specialised accounting software. This should include both income and expenditure to and from all sources including suppliers, employees, HMRC
- Print out a hard copy of all the invoices created and file them together with receipts for any cash transactions
- Pay any invoices due. Being late paying suppliers may adversely affect future business credit and/or incur financial penalties. Conversely, if you have the cash flow to pay invoices early you may benefit from discounts
Monthly
- Check outgoing payments made to ensure nothing has been missed
- Check whether all incoming payments which are due have been paid. Chase up any overdue invoices
- Complete monthly payroll activity including sending the necessary money to HMRC. All salaries will need to be reported and any deductions sent directly to HMRC.
- If you’re registered for VAT purposes and are paying monthly, send the installment due
- Look through bank statements for the past month to check for discrepancies, errors and any indications of fraud. This is also a good opportunity to identify where the bulk of business expenditure lies
- Compare the gross and net profit with previous months to identify growth and trends.
Quarterly
- If you’re registered for VAT and make quarterly payments, send any money due.
Annually
Yearend accounting requirements will vary depending on the type of your business:
- If you are a sole trader you will need to complete annual accounts and submit your own self-assessment tax return. This will include all the information from the business including gross income and tax deductible expenses. The amount of income tax and National Insurance you will need to pay will depend on the figures you submit.
- Limited companies will need to file their end of year accounts with Companies House. There is a deadline of 9 months from the reference date used for your company. If your total turnover does not exceed £6.5 million you can submit abbreviated accounts only. This includes notes and a balance sheet rather than a full financial statement. However, you will still need to prepare the full end of year statements and accounts for other interested parties such as HMRC and any shareholders.
Top tips and advice for small business bookkeeping
Although it may be daunting it is entirely possible to go it alone and complete your own bookkeeping. There are a few top tips which can help make the process far easier, and avoid any pitfalls.
Using accounting software rather than simple spreadsheets may seem like extra work but you’ll be glad that you took the time when it comes to completing the bookkeeping. Deliberately designed to capture the essential information, specialist software makes the process much easier. There are different packages available at various price points so getting access to this kind of expert technology doesn’t need to cost a fortune.
If you want to increase your own knowledge without having to spend a single penny, keep an eye out on the HMRC website. They offer webinars and videos for small business owners which can be accessed for free.
For businesses that are trying to break even, it can be tempting to use any spare cash on immediate expenses but don’t delay in putting money aside for tax. Being slapped with a year-end tax bill that you haven’t saved for could be catastrophic. Set aside between 25-30% of your income every month and you can pay your tax at regular intervals throughout the year.
Finally, if you’re attempting to do your own bookkeeping you might be want to keep the time you spend on the task to a minimum. Don’t skimp on learning as you could end up spending more than you have to. Set aside some time to learn about the various expenses and the time you lost could be more than recouped in the savings you make.
If you need the help of a local bookkeeper or accountant register your details today and get multiple quotes for your bookkeeping and accountancy needs. Alternatively, you can get free advice from one of our qualified accountants for your bookkeeping and accounting needs and we can give you a direction how to overcome the problems and choose an accountant or cost-effective solution.
