How do you get on with your bookkeeping? If you’re running a small business (including if you’re a landlord with rental income, or earning income from other sources on top of being paid via PAYE) hopefully you’re on top of your bookkeeping. Any business big or small must keep its books in order in order to have its accounts in order and to meet its compliance obligations. Below are five brilliant bookkeeping tips. Staying on top of bookkeeping helps to maintain a healthy cash flow and will mean you spot trends in your finances early on.
1. Keep personal expenses and business expenses totally separate and check each month
Open a business bank account and keep business and personal expenses separate. Pay money from your business account into your personal account; and avoid using your business account for personal expenditure. If all the expenses going through the business relate to the then that means the business is transparent; and if all the money going into the business account relates to the business, each transaction backed up by an invoice, again it’s very transparent. There’s no law to say you must have a business bank account, but HMRC prefers it if you do, and it makes bookkeeping a whole lot simpler.
Checking your bank statement every month combats the risk of fraud or a mistake by your bank and provides insight into where money’s being spent.
2. Be responsible, ask: Whose money?
Remember whether it’s a limited company you run or a sole trader business, not all the money in the business is yours.
- As a director of a limited company, even if you own it 100%, you can’t spend the company’s money unless it’s a legitimate business expense.
- A self-employed person can draw from the business bank account but remember there’s tax and national insurance and other business expenses to pay.
And keep back 20% for tax and keep back another percentage for bills
Under all circumstances, make sure that you keep abreast of what your tax bill is likely to be at the end of the year and keep aside the money to pay it. Similarly make sure you can meet your obligations with suppliers; that cash flow can meet the wages bill etc. Be responsible … stay on top of your books.
3. Hire an accountant that offers cloud bookkeeping and accounting software
An expert accountant will save you more money than the fees they charge probably, because an expert will be faster at turning the books into accounts, and will know all the ins and outs of tax planning to help reduce your tax bill.
Move over to the cloud right now
By April 2019 HMRC plans that all small businesses earning over £10,000 per year will be using online accounting software to record income and expenses and submit a summary of that information every quarter. Each business and every landlord will have to use some form of accounting software that is able to communicate with HMRC’s systems. Paper records and spreadsheets will no longer be enough, so switching now to the cloud to keep books up to date is a good idea.
Once you switch, though you’ll realise that bookkeeping and accounts have been made quite a lot easier with cloud technology. Once you’re able to access your books and accounts from anywhere on desktop, laptop, tablet, and smartphone, upload receipts, invoice a job or provide a quote, all from the same software, you’ll realise how amazing digital books and accounts are.
4. Understand what bookkeeping is and take responsibility for proper financial records
Even if you have an accountant you should know that bookkeeping involves the recording, storing and retrieval of financial transactions of a business, including issuing invoices and recording receipts from customers, verifying and recording invoices from suppliers and paying invoices.
Twenty minutes a month can cover the bookkeeping tasks to keep the business books in order. Hiring an expert accountant to guide you, one that provides free cloud bookkeeping and accounting software as part of their package will mean that you’re in control. The elements of bookkeeping are:
a) cash book: payments into and out of your bank account, which will be a useful forecasting tool as well as a historical record.
b) Sales invoice file: on the cloud this is where you raise and store invoices, it’ll automatically update across the whole system. If you use cloud bookkeeping and accounting you can generate the invoice, record the invoice, store the invoice in date order, and be alerted to unpaid and outstanding invoices.
c. Purchase invoice file: make sure you note down how (cash, cheque, card) and when you made the purchase. Scan and upload, then file purchase invoices on the cloud.
Keep receipts for everything you buy and have an understanding of what’s an allowable expense for tax purposes and what is not
Some cloud software has smart apps that mean you can automatically upload receipts to the system and check your bank balance, all from one amazing software.
5. Run a compliant business / Don’t overrun deadlines
Tax and VAT investigations can occur at any time to any business of any size, so long as you’re running the business compliantly, transparently, an investigation is nothing to worry about. Yes, it’s a bit inconvenient, but if you’ve taken out tax investigation insurance and already use cloud bookkeeping and accounting software, and it’ll be quite easy to collate everything HMRC has requested.
If you’re late filing self-assessment, accounts, VAT or PAYE returns with HMRC you will be fined and there will be penalties to pay as well, which increase the longer you leave it. The same if you’re late paying what you owe, you’ll be fined and then penalties will grow in tune with how much you owe and how long you leave it. Make sure you don’t overrun HMRC deadlines.
Some accountants offer expertise, free cloud bookkeeping and accounting software, plus a guarantee that you’ll never file late due to an error by the accountant. Find out more here.