Accounting and bookkeeping

The prospect of bookkeeping is enough to strike fear into many people who want to start a small business. Yet with the right system in place, maintaining simple financial records doesn’t have to be an ordeal - it simply involves detailing business income and expenditure.

As well as being a legal requirement (you must retain your financial records for six years), staying on top of your bookkeeping will help you to monitor your cashflow.

Simple bookkeeping

All you need to run the most basic set of accounts is: a cash book to record money entering and leaving the business; a sales ledger, which details money received and owed; a purchase ledger, which tracks outgoings; and a wages book, which details salary payments and National Insurance contributions. You can keep these ‘books’ as paper records or computer spreadsheets, but many businesses now prefer to use simple bookkeeping software to keep track of income and expenditure.

You will need to keep your cash purchase receipts, so it helps to get a box file in which you can keep them (enveloped-off into months). If you’re going to be dealing with cash, cheque or card payments, till rolls provide a convenient means of updating your sales ledger.

You also need to retain bank and card statements, fill out paying-in books and cheque book stubs meticulously, maintain payroll records (if you employ people) and VAT records (if you’re registered). 

If you decide to run manual accounts, you will need two lever-arch files for purchases paid and purchases unpaid. When you pay an invoice, simply transfer it from your unpaid to your paid folder. You'll also need another two lever-arch files – one for sales paid and another for sales unpaid.

You should set up a dedicated business bank account. Avoid using your personal account to accept payment or buy things for your business. Retain all receipts and invoices for all business expenditure, as well as utility bills, etc. 

Electronic bookkeeping systems

Basic accounting software is more affordable than ever (budget £100-£180 inc VAT) and many deals come with free support. You could even set up a few simple pages in popular spreadsheet software, such as Microsoft Excel.

Dedicated accounting packages are easy to use – even for those with limited know-how. Errors can be corrected quickly (which is more complicated when using manual systems), you get a snapshot of your cashflow at the click of a mouse (this is possible, although much slower with a manual system), as well as find out about money you owe and are owed. Handy financial reports can be gained at the touch of a button. You can also view sales patterns and costs, which can help with forecasting and budgeting.

DIY or use an accountant?

Employing a full-time bookkeeper isn’t viable for many small firms. Sometimes such a role is combined with other duties such as office and HR manager. You might be able to afford a part-time bookkeeper. Often a spouse gets drafted in to take care of the books in return for a part-time wage.

The no-cost option, of course, is to do it yourself and maybe get an accountant to take care of the more complicated stuff. Having to ‘do your books’ after hours or at weekends is an occupational hazard for many small-business owners. It can be the last thing you need after a long, busy day - but it can’t be avoided if your business is to survive and prosper.

More on this topic:

• Q&A: Bookkeeping for start-ups
• Five top tips for doing your own books
• Ten common start-up bookkeeping mistakes
• Q&A: Producing invoices

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