Bookkeeping is one of the essential tasks to keeping your business’s machinery in good condition – and yet, it is one of the functions that often gets overlooked or is done haphazardly. While you might get away with managing your books yourself when you are just starting your business, pretty soon, you will need a professional to take over and make sure everything is in order.
In the meantime, if you are having trouble decoding what really matters in bookkeeping and how to sail through it, here is a handy set of bookkeeping tips for small businesses like yours:
1. Choose an accounting method
There are two main accounting methods – cash basis and accrual basis – and which to pick depends largely on how your business has been set up. In cash accounting, your transactions are recorded when you receive cash or pay an expense. It is an easy method that helps you keep track of cash flow.
On the other hand, accrual accounting is a more common way of bookkeeping. Revenues and expenses are recorded before the money is received or paid – for instance, when the invoice is processed for you or sent. If you want to know more about accounting methods, consult Lyel Accountants.
2. Keep records of every transaction
Even if it is just a postage stamp, make a note of every little business transaction, including when it occurred, to whom it was paid or received from, and the mode of payment. You will need these records later on when balancing your books or in the case of a dispute. A smart way to store receipts is to scan and upload them on the cloud or your computer using any tool like Dext.
3. File all bank statements in the proper order
You should store all bills, invoices, transaction details and bank statements in sequence, filing them away as soon as they hit your desk. This saves you valuable time – you do not want to be frantically searching for documents when the tax deadline is looming!
The best way to keep things organised is to upload your data to simple accounting software. However, depending on the size of your business and your comfort level with technology, even an Excel sheet might do for you.
4. Take tax deadlines seriously
This is one of the most common bookkeeping tips. HMRC deadlines are not to be trifled with. Missing them can cause you hefty penalties. Start following up with your clients for payment well in advance so you can prepare your books in time. And if any client is persistently late, consider not working with them anymore – they are disrupting your cash flow and causing you a lot of hassle.
5. Know how long to hold on to your records
Did you know that all businesses must hang on to their financial records for five years after the Self Assessment tax deadline and limited companies need to keep them for six? Hold on to your records. Again, scan and store them digitally on your computer for easy access.
6. Claim all the expenses you can
Yes, of course. Ask any accountant, and this point will be at the top of their bookkeeping tips for small businesses. Did you know that many small businesses lose thousands of pounds yearly in unclaimed expenses, often because they did not realise they could claim those? When calculating your tax bill for the year, look up which self-employed expenses you have incurred and deduct those from the total. If you need help with calculations, get in touch with us!
7. Monitor your cash flow
The last thing you want your business to be saddled with is a cash crunch. Keep an eye on your cash inflow and outflow and have a process in place by which you send reminders for outstanding invoices so that they get paid. For the money you owe your suppliers, try to pay ahead of time so you can get any discounts they offer for early payment.
8. Budget for your tax payment in advance
The Self Assessment deadline for HMRC is 31st January, and obviously, your income and expenses will keep evolving until that point. However, it is vital to have an approximate idea and to budget for it in advance so that you have ready cash in hand when the bill is due.
Also, remember that if this is the first operational year of your business (congratulations, by the way!), you will need to pay your tax bill for that year and also pay the first instalment of what you owe for next year. This is called payment on account.
9. Consider switching over to accounting software as soon as possible
While several tools require expert accounting knowledge to operate, you also have beginner-friendly accounting solutions to choose from as a small business owner. Accounting software has manifold benefits in balancing your books, automatically reconciling transactions with your bank statements and giving you up-to-date financial snapshots whenever you want them. When choosing a tool apt for bookkeeping for small businesses, you want to be sure that it has the back-end capacity to scale up your business as you grow.
10. Delegate your bookkeeping for peace of mind and accurate results
Here is some honest bookkeeping advice: as your business keeps growing, it simply is not feasible for you to manage all your accounting tasks in-house. By getting help from a professional bookkeeper, you know they will file everything accurately and on time, leaving you free to build your business.
Your bookkeeping service provider will also have valuable insights on how you can reduce your business costs or take advantage of tax relief schemes that you may not have known about. Plus, you get all this for a highly competitive monthly fee – a worthy investment.
Over to you
We hope these bookkeeping tips helped to demystify the bookkeeping process for you as a small business owner. Even if you take an expert accountant’s help, it is a good idea to know how business financials operate so that you can ask your bookkeeper the right questions and have more control over the tax filing process. If you want someone to take care of your bookkeeping? Contact us. Speak soon!
