Legally, all businesses must maintain accurate financial records and retain them for six years. Your books can also help you make better-informed decisions when running your business. Without detailed, current knowledge of your finances, you won’t be able to tell if your business is performing well or not. You also risk making bad decisions because you don’t have the necessary figures to hand, which can ultimately lead to business failure.
Accurate books can show where your business is losing money, for example, or areas where you need to cut costs. They can simply show how much you have to make to stay afloat – they might even help you to spot opportunities, by showing where and when sales activity is peaking. Being unaware of your business finances is like driving a car without any dashboard displays: you won’t know how fast you’re driving, when you’re going to run out of fuel or when you need a service.
You can keep your own computer spreadsheets, which is probably the simplest method. Spreadsheets enable you to maintain a simple cashbook, showing money entering and leaving a business. To get a true picture of cashflow, outstanding debts and costs must also be included. If you update your spreadsheets regularly, you get an accurate picture of your business’ finances as and when you need it.
It isn’t that difficult if you have Microsoft Excel or similar and know a few basics. Alternatively, ask an accountant for help. Many will let you have some advice and a ready-made spreadsheet template for free, if you agree to get them to do your end-of-year returns or accounts. Spreadsheets make life easier for your accountant, too, which means they charge you less.
Depends on your type of business, but for most micro start-ups, dedicated accounting software is not necessary, really. Aside from cost, many new micro-businesses would have no real need for some of the complex features such programmes include. I recommend using simple Microsoft Excel spreadsheets – at least in the early stages of your business.
The cashbook is the most important part. It shows money entering and leaving the business. You might also have a sales ledger, which details money received or owed, while a purchase ledger details sums paid out or owed by your business. These exist as spreadsheets, too. Then, all you need to do is pay an accountant to prepare and file your accounts or returns. This shouldn’t be expensive, if you have been thorough when maintaining your own simple records.
Keep all receipts for allowable business expenses – they provide evidence of purchase should HMRC make such a request. Create labelled envelopes for each month and retain receipts in these, housed within a box file. Better still, make all purchases on a business debit or credit card, then your statements will also provide proof of purchase, enabling you to accurately track all expenditure. Also retain copies of every invoice you pay and any bills, for example, for utilities, etc. If you pay by cheque, make sure you fill out the stub fully.
Depends on the number of sales and purchases your business makes. The one thing I would say is the more you put it off, the more difficult it becomes – little and often is a good approach. Never leave it more than a fortnight, even if there isn’t much to do. Update your records and have a quick look at key figures such as monthly turnover and expenditure.
Accountants are mindful of a business’ income, especially when it comes to start-ups. To get an accountant to complete and submit a tax return, expect to pay £200-£300, slightly more if you’re receiving ongoing advice, too. For a larger business, one that turns over maybe £60,000, annual accounting costs should not be more than £100 per month. Generally, an accountant should be able to more than justify their fee by saving you a lot of time, hassle and money.