Small business owners have to contend with a myriad of things on their own to ensure that their venture operates smoothly, scales and grows at an appropriate pace. Apart from logistics, staffing, payroll and more, a business owner also has to deal with bookkeeping on a regular basis to ensure that they stay on the right side of the law. But if bookkeeping is not your strong point, there are some bookkeeping tips for small business owners which we’d like to share with you to help make your journey more seamless. Here are a few tips you could implement.
Bookkeeping vs accounting
There’s often confusion between the terms “bookkeeping” and “accounting”. While they both deal with the numbers of the business, they are, in fact, two different things. Bookkeeping, for example, involves keeping an accurate record of business costs, expenses and transactions. This is an essential way of helping you understand your business’ profitability and it’s crucial for helping you file your tax returns (VAT) every year. In addition to this, bookkeeping can also involve processing of an invoice, reviewing bank statements, following up on unpaid invoices and even sending customers statements of account in cases where multiple invoices are due.
In short, bookkeeping is the day-to-day administration of your business’ finances, including its income and expenses. This differs quite significantly from accounting, which is a much higher form of bookkeeping as it “looks at the financial health of a business through reports and forecasts”, enabling business owners to make financial decisions based on real and actionable financial data.
Small business bookkeeping tips
And now, without further ado, here are our eight tips for small business owners who would like their bookkeeping to be in order:
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- Record every payment
You need to record every payment that you receive as and when it occurs so that you can tally up your income on a daily basis and stay on track and on top of your finances.
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- Choose your preferred accounting method
There are two primary accounting methods. Traditional accounting looks at income and expenses on the invoice date. Cash-based accounting on the other hand looks at income and expenses on the date of the actual payment. The latter can be a more convenient option because it reduces the risk of having to pay tax on money you have not received yet. However, it is only available as an option to you if your turnover is £83,000 or less.
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- Adhere to deadlines strictly
Not adhering to the deadlines of the HMRC can result in financial penalties that can accrue over time. These are ultimately unnecessary expenses that a small business cannot afford to incur. In addition, be sure that while you’re adhering to your legal obligations and legal deadlines, that you also chase your clients for late or outstanding payments as well to ensure that your books are in order.
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- Track your expenses
Keeping track of your expenses in a separate bookkeeping record book will also help ensure that you can monitor what you’re spending on and make thoughtful decisions about which of these costs can be reduced or eliminated altogether thereby giving your business more scope for financial growth.
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- File bank statements and invoices in date order
This tip will save you a lot of money as by not filing your bank statements and invoices in order, your bookkeeper will end up doing this for you and you will incur expenses for something that you could have easily and quickly done by yourself.
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- Create and utilise your monthly reports
It’s crucial to create monthly reports of your income and expenses, profit and loss and the overall financial position of your small business. Use these monthly reports to make better financial decisions and projections going forward.
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- Keep records of everything for the right period of time
This will help you stay on top of your business and ensure that you abide by your legal obligations. For example, business records should be kept for at least five years after the self-assessment deadline. Meanwhile, limited companies should retain accounting records for at least six years.
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- Use Accounting Software:
Consider investing in accounting software tailored to small businesses. These tools can simplify your bookkeeping tasks by automating processes, tracking income and expenses, generating reports, and even assisting with tax preparation.
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- Separate Business and Personal Finances:
Open a separate business bank account and credit card to keep your personal and business finances separate. This practice simplifies bookkeeping, reduces confusion, and provides clear records for tax purposes.
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- Regularly Reconcile Bank Statements:
Reconciling your bank statements with your accounting records is crucial. Regularly review your bank transactions and ensure they match your recorded income and expenses. This helps identify any discrepancies or errors that need to be addressed.
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- Organize and Store Receipts:
Keep track of all business-related receipts and invoices. Create a system for organizing and storing them, either physically or digitally. This practice not only helps with accurate record-keeping but also ensures you have the necessary documentation in case of audits or queries from tax authorities.
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- Track Expenses Categorically:
Assign categories to your expenses, such as office supplies, utilities, or advertising. This allows you to analyze spending patterns and identify areas where you can reduce costs or make more informed financial decisions.
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- Stay Updated with Tax Regulations:
Tax laws and regulations can change over time, so it’s important to stay informed. Keep track of updates in tax rules and regulations that may impact your business. Consider consulting with a tax professional to ensure compliance and optimize your tax strategy.
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- Backup and Secure Data:
Regularly backup your financial data to prevent data loss. Use secure storage methods, such as cloud-based services or encrypted external drives, to protect sensitive information.
Seek Professional Bookkeeping Services: If bookkeeping tasks are overwhelming or time-consuming, consider outsourcing to a professional bookkeeping service. Outsourcing can provide expertise, accuracy, and peace of mind, allowing you to focus on core business activities.
Professional outsourced bookkeeping services in London you can rely on
If you’re wondering how to manage accounts as a small business and the thought of doing your own bookkeeping seems daunting, do not worry. There are highly professional and experienced bookkeepers here at Tax Navigator which you can rely on. We help businesses of all sizes with their bookkeeping needs to help you make stronger and better financial decisions and forecasts for your business, thereby helping you grow.