While launching any new business is an exciting venture, the gloss can soon wear off through the friction of simply having too much to do. As well as the invigorating side of business promotion and gaining customers, you have to make time for down-to-earth tasks like accounting.
Leaving the books to take care of themselves can lead to all kinds of trouble, whereas taking a proactive interest can open many new doors and business success.
Understanding Accounting Benefits
Accounting is more than simply knowing what money is doing from day to day, although that’s important. Other benefits of well-kept books include:
- Streamlined profit and loss forecasting
- Grounded future planning
- Better success rate in loan applications
- Fewer tax return headaches
- Lower accountancy bills
When you’re in business for the long haul and want to build on early successes, setting up a simple accounting system that is easy to maintain and which contains all the information you need (and none that you don’t), is key.
Assessing Your Needs
Your books are your personal business records; they’re not there to impress anyone or show off your business prowess. You don’t need the biggest and most sophisticated suite of accounting software if a simpler system will give you what you need. The best advice is to keep it as simple as possible. If you’re self employed, without salaried staff, for instance, you don’t need software that demands PAYE information.
Because there are so many accounting system variations, those who’re totally new to bookkeeping could benefit from professional advice. An accountant or bookkeeper can offer guidance on a suitable method and help you understand what you need and how to maintain accurate records.
Hoping books will take care of themselves is risky, not least because it’s hard to chase down missing records when you’re filling in your tax return. As your business grows, professional help can make sure you’re not paying too much tax, as well as maximising your claimed expenses and keeping you within the law.
Accountant, Bookkeeper, or Both?
Having decided to get some professional accounting advice, who should you go to? At first, the differences between the two professional branches of accountancy can be confusing:
- Bookkeepers will keep your records straight on a day to day basis. They’ll organise a system that works for your unique circumstances, and take over updating your records. Paying and issuing invoices is also part of the remit, if that’s a service that would help. Good bookkeeping through the year can make the accountant’s job easier, thereby reducing your bill.
- Accountants will take a broader, deeper delve into your records to compile your tax return and calculate expenses and allowances. They may offer business or financial advice if they feel you would benefit from their expertise.
Avoid Mixing Personal and Business Finances
Just as you shouldn’t use a personal bank account for business expenses, neither should you use your business bank account for personal spending.
Keeping the two areas of your financial life ring-fenced makes accounting very much easier. In business accounting, not only do you need to record every expense, you also need to stipulate the reasons.
If, as a sole trader, you absolutely must use money in your business account for personal expenses, transfer the amount as drawings into your personal bank account first. Be strict about it.
Get Paid Promptly
Getting paid on time is as important as paying your own bills in a timely fashion. With an efficient bookkeeping system you can see at a glance which invoices are outstanding. Choosing cloud accounting that provides a bank feed makes it easy to track transactions and stay on top of invoices and payments.
In the beginning you can hold one or two clients in your head, but as the business progresses this will become impossible. You’ll need to rely heavily on your accounting system to make sure your invoices are all paid, and that you’re not allowing what you owe to mount up.
Automate as Much as Possible
Online accounting and banking can make daily bookkeeping tasks easier to track.
- Set up a bank feed so your online accounts update as money moves through your bank account.
- Make the most of debit or credit cards for expenses, but pay off credit cards each month.
- Manage invoices online to generate digital records.
Doing as much online as possible allows you to benefit from HMRC’s acceptance of digital records. It cuts down on your paper trail and saves time you’d otherwise spend organising and storing paper receipts.
Far from being a chore that gets in the way of business, accounting is the key that unlocks opportunity and streamlines processes. Make it a priority to set up a simple, efficient system early on, then adjust and expand as necessary as the business grows.