by constructaquote - 29 March 2019
To build a profitable and healthy business, you need to keep your business accounts in good working order and file your tax returns on time. If you’re running a small business, chances are you’re juggling multiple roles yourself and managing a variety of day to day tasks.
When it comes to managing your accounts, things can be quite confusing. So, we’ve created this quick guide to help business owners manage their business finances better.
To make managing your accounts easier and less time consuming, the key is to stay organised and keep on top of things. The best way to do this is to document and file all of your financials as they arise, as well as regularly go through your accounts and check everything is in order.
Advances in technology mean that there are now many different software programmes available to assist you with book-keeping and accounting – such as Quickbooks and Xero. They make it much easier to log information digitally such as bank statements, invoices and receipts, at the touch of a button. The information can also be accessed on any device, making it a convenient solution for business owners on-the-go.
If you decide to use one of these programmes, it’s a good idea to back up all of your information either on a digital spreadsheet or on paper.
The records you need to keep will depend on your business type, but in general, every business should keep the following information:
This is a list of all the payments that go in and out of your business bank account. This also acts as a useful forecasting tool as it allows you to see your costs and income clearly.
All invoices to and from the business should be filed (either digitally or in paper form) in date order. Outstanding invoices should be kept separately to paid invoices, and invoices that have been issued to your business should be kept separately to those you have issued to clients, customers or third parties.
Most accountancy software will allow you to create invoices, send them to clients and store them for future reference. If you decide to make your invoices manually, you can create a simple template in Word or use an invoicing tool such as Panda Doc.
Many people today use a variety of digital tools for every-day tasks such as sending newsletters to customers and scheduling social media posts. Whatever programme you use, you should download a copy of your payment history to prove the payment has been made from your business.
Whenever you spend money from the business account, it is important to keep proof of the payment by keeping your receipts. These should be filed in date order so they can be easily cross-referenced against your bank statements when your annual accounts need to be done.
Many accountancy tools allow you to scan receipts straight from your mobile phone and store them in a digital folder. This is great for businesses with multiple members of staff that make purchases from the business account.
Statistically, the longer you are in business, the higher your chances of a VAT or tax investigation. While they are usually nothing to worry about, it helps to have everything available and in date order to make the investigation as easy as possible.
This is a list of regular payments that go in and out of your business to or from customers and clients. Some accountants will require this to cross-reference the payments on your account statements.
If your business is a limited company, you must have a separate business bank account to your personal one. As a limited company, the money belongs to the business. The business funds must only be spent on business purchases. Money for personal expenses must come from a salary or dividends paid to you by the business.
If your business is set up as a sole-trader, you do not have to have a separate bank account for your business as you are the business. However, it’s always a good idea to keep business and personal finances separate so that things are clear to understand.
Many small businesses, especially start-ups, are so busy managing the day-to-day tasks of their business that they forget to check their accounts until the tax return deadline is looming. While it may not seem necessary to monitor the state of your finances regularly, businesses that neglect their finances can end up in financial trouble.
Spending an hour or two every few weeks is a good way to stay on top of things, chase up any outstanding invoices you may have forgotten about, and re-assess your outgoing costs.
Even if you’re using an accountancy programme to free up some of your time, you should still check everything is being documented correctly.
While all of the above steps will help you to prepare your accounts for an annual tax return, you should also take time to plan how much tax you will need to pay.
The amount of tax you pay will depend on your business type (limited company or sole-trader) as well as how much profit you made within the year.
Instead of the shock of receiving a tax bill you weren’t ready for, you should find out the percentage of tax you will need to pay and put some money aside each month in preparation for it. Failing to pay a tax bill can result in a loss of assets, debt and bankruptcy.
While it may be seen as an additional cost, seeking help from a book-keeper or accountant is a wise decision for business owners that want to keep their business healthy.
A good accountant can do more than just file tax returns and accounts. They can help you set up a book-keeping system and payroll scheme, as well as advise on ways to raise capital to expand your business.
A book-keeper is a great solution for busy business owners that do not have the time to get everything organised. The best way to find a reliable book-keeper or accountant is to ask other business owners who they use.
Whether you decide to seek help or manage your accounts yourself, the key to building a profitable business is keeping your accounts up to date and in chronological order. This will make it easier for you to manage your money and keep HMRC (Her Majesty’s Revenue and Customs) happy.
Additionally, the more organised your finances are, the lower your accountancy bill will be.
Ready to get your accounts organised? Find out how much national insurance you should be paying, here.
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