Bookkeeping is vital for all business, no matter how small. These records will help you determine whether your business is growing or failing. Also, your books are important for accounting purposes. At some point, your company may get audited, and having well-maintained books can prevent penalties. Bookkeeping can be challenging, especially if you don’t have experience with this activity. Here are some tips to help you do your books:
As a businessperson, you should keep track of your expenses long before you actually start the company. This can reduce the amount of tax you have to pay. This is because all the expenses have to be subtracted in order for you to get the new profits. Tracking your expenses will also help you determine the progress of your company and even build financial statements.
It is important to come up with a system of organizing your receipts and other records that are relevant to your business. Besides goods and service receipts, you need to keep your bank statements, chequebook stubs, bank slips, till rolls, and sales invoices. Records about your personal income should also be well organized.
These records will help you work out your profits so you can figure out your tax returns. You won’t have to send the records when you submit your returns, but you may have to show them to HM Revenue and HMRC. If you run your business from home, your records will prevent you from mixing up the business expenses with personal expenses.
There are many ways of doing your books. You can choose to do the books yourself using Excel sheets or other accounting software such as QuickBooks. Another option would be for you to hire a local or cloud-based bookkeeper. This would be a part-time employee. Larger businesses can afford to hire a permanent bookkeeper. It is necessary to note that bookkeeping does not involve calculating profits or analysing the growth of your business. The employee will only have to record day-to-day transactions of the company.
You also have to figure out whether you will follow the accrual or cash basis to do your books. With the cash-based system, you will have to record transactions once they have been paid for. In accrual accounting, transactions are recorded when they happen, even if the money has not been sent or received. In the UK, businesses can use the cash-based system if they have a turnover of less than £150,000 in a year.
Your business has to pay taxes on the profits you make. This means you have to take all your income and subtract the business expenses, then calculate the taxes on the final figure. It is important to be timely since there are penalties for late tax returns. If you miss the deadline by three months, you will have to pay an extra £10 every day. You can set aside some money for taxes every month in a separate account so you don’t get inconvenienced when it’s time to pay taxes.
Having a bank account for your business is not always a legal requirement. Some companies can simply exist without a bank account. However, it is easier to keep your books if you maintain one account for your company and a different one for your personal activities. Getting a credit card for your business will also prevent you from mingling the expenses of the business with your own, and this can make it easier to do the books. It is worth noting that a business bank account is more expensive to maintain compared to a personal account. You should check the fees of different banks so that you get the best rates.
Doing your own books can be a tough job. You can make it easier by following the tips listed above. First, you will need to record all your expenses and even keep some proof of the transactions. This will help you fill out the transactions in your book and will also serve as proof doing your taxes and during auditing. You also need to figure out whether you want to use accounting software for bookkeeping purposes. Another option would be to get employees to do the books. If your business can’t hire full-time employees, you can go for part-time bookkeepers. You also need to make budgets for taxes. Opening a business bank account can help you manage your taxes efficiently, and it will also allow you to view your transactions easily.