The best way to keep the books for your small business is all about easily and accurately recording the financial transactions of your business. This is important not just to stay ‘tax legal’ – it also means you have the reliable financial information you need to make informed decisions.
Well-kept books will enable you to secure additional finance more easily or help establish the value of your business should you ever wish to sell it.
The trouble is, small business owners have many priorities, so the importance of good bookkeeping can get overlooked – and that’s when accounting errors occur. This can result in your cash flow being hit and profits lost, on top of this, there is the stress that comes from feeling financially out of control.
According to a YouGov survey, over one-third of micro-business owners feel overwhelmed by their business accounting. Fortunately, it is possible to make your life easier by following some tried and tested bookkeeping tips for small business.
Get the bookkeeping basics right
Keeping the books for a small business requires you to record everything accurately and completely. Unless you do this, you won’t be able to trust your own figures, and neither will anyone else. Messy, incomplete financial records lead to inappropriate business decisions and are one of the triggers for getting your books looked at by the tax authorities. That can be stressful, disruptive to your business and something to avoid if possible.
For your books to be accurate, you need to know what information to record. You can get a comprehensive list direct from HMRC about what you need to record if you are self-employed or running a limited company. Your local accountant will be able to give you a checklist of all the ledgers, journals, receipts and papers that they will want to see.
Stay in control from the start
The best way to do bookkeeping for a small business is to adopt a ‘little and often’ approach rather than to ‘a lot all at once and infrequently’. For instance, by setting a specific day and time to do your books each week, not only will you get into the bookkeeping habit, but you also benefit from having an up-to-date picture of your business’s financial health.
In addition, when it comes to filing your year-end accounts, much of the ‘heavy lifting’ has already been done, making that a much less stressful experience.
Effective bookkeeping improves cash flow
As a basic bookkeeping discipline, always keep personal and business finances separate. If you mix the two, it makes accounting more difficult and time-consuming – and expensive.
In particular, keep a ‘bookkeeping eye’ on outstanding invoices. If you aren’t getting paid on time, you are giving your customers an interest-free loan at the expense of your cash flow.
According to BACS, the automated payment system, nearly 40% of companies spend up to four hours a week chasing late payers. Almost a quarter of small and medium-sized businesses have faced a financial crisis because of delayed payments from customers, with many staring at insolvency because of unpaid invoices.
So, it is imperative to have a plan in place for dealing with invoices that haven’t been paid after 30, 60 or 90 days.
Create bookkeeping systems
Using a debit or credit card in preference to cash transactions, which are difficult to track, will also simplify bookkeeping for a very small business. Record payments out of petty cash accurately and ensure the petty cash account is regularly reconciled. This will help identify any inconsistencies and cut the risk of theft.
Create systems to capture and deal with all expenses and payments as they arise. This will help avoid unpleasant financial surprises and reduce stress and paperwork build up. A small business accountant can show you ways to set up these processes in the simplest way.
Keep every piece of paper and correspondence to do with money that your business spends or receives. Make sure no paperwork gets thrown away and that all employees understand the importance of attaching copies of receipts to their expenses claims. You may need to refer back to them and you may have to produce them for the authorities.
Make sure more than one person is familiar with your bookkeeping system. It makes sense to have a bookkeeping assistant who can step in should the main bookkeeper be away or stop working for the business.
Use bookkeeping software
Although one-fifth of business owners admit in a YouGov survey that they still manage their financial accounts with pen and paper, using bookkeeping and accounting software rather than a paper-based system should be the first choice for pretty much any small business.
There are many cloud accounting packages designed especially for small businesses that make it easy to set up a bookkeeping system, complete with all the templates you need to record expenses and manage invoicing. If you employee any staff, some even offer a combined payroll solution for an easier integration.
Now that initial concerns over security have not materialised, most companies are choosing cloud-based over desktop software for reasons of cost and convenience. If you choose a cloud-based product, you will be able to access your business information from anywhere, and have off-site storage of your financial information.
However, it is also a sensible precaution to further back up all of your financial documents, not just electronically, but perhaps copied in a paper format, in case there is a major technical failure.
Whatever system you opt for, get to know the software so that you get the most from it. While you don’t need to know every detail of a package, making a little more effort to go beyond the basics will be time well spent.
Get bookkeeping help when you need it
Don’t panic if you do get behind with your paperwork. Instead of trying to catch up in one go, do the current month and the earliest month not done. Then do the same next month and so on. You will soon catch up.
However, a backlog of bookkeeping may be a warning sign that it is time to outsource your bookkeeping to an external service.
Just of a quarter of small businesses have one or more dedicated members of staff looking after finance or accounts, with some 60% of small business owners being entirely responsible for their company’s finances on a day-to-day basis, putting extra strain on their time. Using a bookkeeping service may be an additional cost, but it will enable you to focus on income-generating work and help to reduce your year-end accountancy costs.
Move forward on sound finances
Running a small business always involves juggling priorities. However, while there is a tendency for time-poor small businesses owners to see bookkeeping as a time-consuming chore, it provides essential insights and control over business expenses and revenue, in both the short and long-term.
In fact, if bookkeeping isn’t taken sufficiently seriously, you won’t have a tight rein on your finances and you will end up making accounting mistakes that cost your business money.
But, by taking some simple steps such as those outlined here, using technology, making a budget for your company and accessing help when needed, the ‘burden’ of bookkeeping can be significantly reduced. This enables business owners to focus on growth instead, knowing that they are moving forward on a sound financial footing.
If you’re having trouble keeping up with your bookkeeping, BrooksCity can help. Our bookkeeping services in London take the headaches and admin away and instead let you focus on what you do best, growing your business. Contact us for more information or request a quote here.