Keeping finances in order is vital for small businesses, and worth getting right.
Few small business owners relish the task of bookkeeping, but it’s one of those jobs that can’t be avoided. And doing your own books could save you a lot of money, at least until your business grows. So, here are a few easy-to-digest tips on bookkeeping, perfectly suited to small businesses.
Keep business and personal bank accounts separate
It’s really important to keep business expenditure and profit separate from your personal accounts. When it comes to doing your tax return, having one account for everything can get very confusing. And if you’re audited, it can be risky.
It also helps with managing cash-flow. You need to be able to look at your finances daily and immediately see what kind of state they’re in.
Record everything from day one
Keep your receipts and records of all costs from the very beginning of your business. You might not need to physically hand these over to HMRC, but it’s a good habit to get into.
Claim for everything you can
The rule is fairly straightforward: you can claim for any expense that is made exclusively for your business.
Given that every single expense can be deducted from your profits – therefore reducing your tax bill – no expense should be left unturned. Claim for stationery, train tickets, even food if you’re away on business – no matter how small the receipt is, keep it.
And if you work from home, you may able to claim for part of your utility bills, rent or mortgage payments.
Plan ahead for tax
Hopefully your business is turning a profit; that’s the fun part after all.
But it’s important to always keep one eye on January 31st, and put a healthy percentage of your profits aside to pay your tax bill. While paying taxes can be frustrating, paying tax penalties on top is far worse.
Use a simple spreadsheet, or free software
Up until the point at which you have several employees and a more complex account structure, you probably don’t need to spend any money on accounting software. But that doesn’t mean you can’t create a solid system for your finances.
If you’re handy with spreadsheets, you can probably build one manually. And mostly, it’s common sense: use a different tab for each month, use separate columns for different types of costs (transport, rent etc.), and at the bottom of each column add a total.
However, there are now many reliable and well-received online accounting systems that are completely free – software such as Wave, which does everything you’d need, including invoicing.
If business is good, consider getting a bookkeeper
Bookkeeping is a skill that can be learnt. Unsurprisingly though, some of us are better at it than others – and indeed, some of us are faster than others. For the wrong people, bookkeeping can become a very time-consuming task, which can be a serious problem for typically time-sensitive small business owners.
So weigh up what your time is worth, and how complex your finances are. You may well find it’s worth getting a part-time professional in, and it doesn’t need to break the bank.
It’s also worth checking out HMRC’s free payroll software, which will help keep all of your employee finances in order. It’s free and simple to use.