If you are a new business owner, bookkeeping in some form is going to be essential to organising your finances, allowing 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 as a whole or individuals within it.
Bookkeeping is typically overseen by a bookkeeper, whose responsibility it is to ensure that every type of transaction is collated and recorded. An accountant can then use these records for the purpose of creating reports.
Bookkeeping: The essential details
In the UK, one of the most important uses of bookkeeping records is for the statutory financial statements needed for submitting company accounts to Companies House.
Your bookkeeping process will need to include information on your sales, your expenses, and the salaries of your employees, and yourself as the director of the company.
Bookkeeping for small businesses
Not all small business choose to do their own bookkeeping – it often comes down to their resources, company structure and the amount of bookkeeping work which they need completing.
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. Although 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.
Among those tasks which you can expect to undertake on a daily basis are:
- Creating and sending invoices – invoices are the key facet of keeping track of money coming into your organisation and assuring a steady cash flow.
- Filing invoices and receipts – you should keep copies of documents such as invoices and receipts for payments you have made 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.
Other bookkeeping tasks are done infrequently but are no less important. These include:
- Review of incoming payments – you should keep track of the money which is owed to you by customers, 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; reviewing your turnover and profit.
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.
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 which you can benefit from, including the excellent 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 which can make bookkeeping a more efficient and more accurate process. Choose a package which suits both your budget and your requirements to save yourself precious time. Many Cloud-based packages 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.