What should limited company owners know about bookkeeping?

If you are a new company owner, ‘bookkeeping’ in some form is essential to organising your finances. It allows you to keep up-to-date records of both your income and your outgoings.

In this article, we look at everything to do with bookkeeping: from the basics to the regular bookkeeping tasks which you are likely to become familiar with.

What is bookkeeping?

Starting with the basics, bookkeeping is essentially record keeping of any type of financial transactions concerning your business.

This can involve records of sales, payments, purchases and receipts by either your organisation or individuals within it.

Bookkeeping is typically overseen by a bookkeeper, who ensures that every type of transaction is collated and recorded. An accountant can then use these records to create reports.

Bookkeeping: The essential details

In the UK, one of the most important uses of bookkeeping records is the preparation of the statutory financial statements needed to submit company accounts to Companies House.

Your bookkeeping process will need to include information on your sales, expenses, employees’ salaries, and yourself as the company’s director.

In almost all cases, this will be undertaken by your accountant.

Bookkeeping for small businesses

Not all small businesses choose to do their own bookkeeping—it often depends on their resources, company structure, and the amount of bookkeeping work they need to complete.

It is worth bearing in mind that outsourced bookkeepers or accountants can often save companies a lot of time, due to their experience in completing bookkeeping tasks.

Should you choose to do your bookkeeping in-house, review the lists below for some tasks you can expect.

However, in most cases, you will use cloud-based accounting software (and/or an accountant) to minimise the amount of time you – as a business owner – have to spend keeping your records up-to-date.

Regular Tasks

Among those tasks which you can expect to undertake daily are:

• Creating and sending invoices is the key to keeping track of money coming into your organisation and ensuring a steady cash flow.
• Filing invoices and receipts: You should keep copies of documents such as invoices and receipts for payments you make every day.
• Cash monitoring: Your cash status should be monitored on an ongoing basis to ensure you have enough money to cover payments.
• Outgoing payment strategy – you can often gain discounts by making early payments, and you must also track money you owe to suppliers so that you do not miss any payments due.

Periodical Tasks

Other bookkeeping tasks are done infrequently but are no less important. These include:

• Review of incoming payments: You should keep track of the money customers owe you and chase up any late payments.
• Payroll – as well as paying your employees, you will also have to make all the necessary deductions and payments to HMRC.
• VAT – making payments on your VAT bill in advance.
• Monthly turnover – Calculating this is an essential barometer to see if your business is growing; review your turnover and profit.

Annual

There is one bookkeeping task which requires yearly attention.

• Annual accounts—Limited companies are required to file company accounts every year with Companies House. Small companies can file abbreviated accounts, but full statutory accounts are still needed for HMRC and shareholders.

Quick tips

If you are a small business which is committed to conducting your own bookkeeping, we have put together this list of quick tips to help you on your way:

• Accept a helping hand—there is plenty of sound advice available, including the videos and webinars offered by HMRC.
• Claim your expenses – as a small company, you can reclaim the cost of all legitimate business expenses against your Corporation Tax bill. If you are VAT registered, you can reclaim VAT on any purchases you make. For this reason, it is essential that you keep accurate records and receipts, for everything from travel to stationery.
• Work smarter, not harder. There is a plethora of accounting software packages on the market that can make bookkeeping more efficient and accurate. Choose a package that suits your budget and requirements to save yourself precious time. Many Cloud-based packages – including FreeAgent and Xero – take the administrative hassle out of the equation.
• Don’t forget to budget for taxes – you should set aside funds to pay your Corporation and VAT liabilities. You should only ever draw down dividends from retained profit.