Good bookkeeping: How to keep financial records
If you run your own business, it’s essential that you keep accurate financial records.
Bookkeeping doesn’t have to be time-consuming and staying up to date can save you money, make your business more efficient and help it to grow.
Here’s how to make it easier to manage your books.
Get the right bookkeeping system for your business
It’s important that any new business sets up a system as soon as possible. You’ll need to be able to keep records of expenses, income and taxes from the start.
Make sure the system you choose is easy to use and fits in with your day-to-day activities. There are a range of options available from keeping paper records to using accounting software. Online systems can be easier to use, as they automate calculations, allow you to run reports and give you access to the data you need.
Thankfully, with the right software for your small business, you’ll need to be able to keep records of expenses, income and taxes with ease from the start.
John Leonard, General Practice Partner at BNL Chartered Accountants and a member of the Sage Accountants’ Network says that most of his clients have switched to electronic records.
“It’s good news, as it definitely makes things easier. Cloud software is also a great way to go. It makes a huge difference as we can access clients’ records to help them or spot any issues early.”
Have a schedule
It pays to set aside a regular time to manage your books – this could be first thing in the morning or at the end of the day.
It’s important to keep on top of things – little and often is a good approach and makes it easier to stay up to date.
John says that letting things pile up can lead to challenges for his clients. “We often get information well in arrears, sometimes only at year end. Up-to-date accounts can be really useful for year end tax planning, as they let us look at opportunities for the business. If you leave it too late, you can miss out.”
It’s also important that you don’t miss important deadlines like VAT, corporation tax and National Insurance payments. If you’re late making these payments, penalties can apply and they quickly add up. Keeping your accounts up to date allows you to see what you owe and makes it easier to keep track of your obligations.
Get the right advice
Bookkeeping comes with its own set of rules which you may not be familiar with, so it’s important to ask for support.
“Get advice about the things you don’t understand as soon as you can,” says John. “Your accountant can help with this – that’s what we’re here for. Don’t leave it until the end of the financial year, as by then it can be hard to correct historical information.”
Reconcile your bank statements
Matching the information in your accounts to the transactions in your bank account is an essential part of bookkeeping. It ensures all income and expenditure is accounted for and acts as a check to ensure everything balances.
Software can help make this easier by automating the process. For example, accounting software can let you import your bank statements and the software will automatically match the transactions with the information in your accounts. You can see exactly what’s been added and make amends if you need to.
Keep an eye on your invoices
Late payments can cost a business, affecting cash flow and taking time to chase up.
So it’s important you follow up as soon as possible, issuing a second invoice and calling to find out if there are any issues.
If you choose, you can apply additional fees for any late payments. The government says that these late fees can be applied if the payment is not received within 30 days (or within the timescale stated in any contract, if that’s longer). You can also get advice on the amount of fees and debt recovery costs that can be applied.
Take advantage of any training
For John Leonard, training is one of the most essential elements to managing your accounts.
He says, “It’s definitely worth investing in training, as it helps you make the most of your software and the information from your accounts. There’s a perception that software can do everything but while it definitely helps, you also need a working knowledge of how accounting works.
“We’d advise getting training from your software provider or from an accountant or bookkeeper who has the necessary skills.”
Use the data in your accounts to understand your business
If you’re spending time on your accounts but not using the data to give you insights about your business, then you could be missing out.
John says that “one misconception is that producing accounts is just for the Revenue and Companies House. But they should be a tool that you use to monitor the performance of the business.
“A lot of the time, people focus on the time it takes to do their accounts, rather than the benefit of the insight. The real advantage is that your accounts can tell you if you’re making a profit and where the business is spending too much. If used correctly, they can really tell you where your business is going.”
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