If you want your business to succeed, it’s absolutely essential to manage your finances carefully.
Although you might need an accountant to take care of the details, including filing accounts and taxes, it’s still a good idea to understand how your books work and keep an eye on cashflow.
At its very simplest, bookkeeping means recording your business transactions – your sales income and any non-sales income (such as grants or loans), and your purchases and payments out.
To help with this you’ll need to keep hold of paperwork such as till records, receipts and invoices. You’ll probably also need a cash book for petty purchases.
You can record your transactions in a written ledger, but accounting software packages are available which make the process easier.
Total up your purchases and sales each week, and check against your bank statements to make sure the figures match up.
VAT and bookkeeping
If your business registers for VAT, you’ll need a VAT invoice for all purchases. For small purchases of standard-rated (20 per cent) goods, you can calculate the VAT paid by multiplying the total cost by 1/6.
You’ll also need to issue VAT invoices to your customers.
You can get advice from your accountant, or call the HMRC VAT Helpline on 0300 200 3700.
As well as keeping your books up to date, you need to keep an eye on your cashflow to make sure the business can continue to run. Here are some tips:
- Send out invoices promptly and chase up any outstanding payments as soon as they become due.
- Avoid overtrading – taking on orders that cost you a lot of cash to fulfil. As you won’t be paid until after you’ve delivered the order, which might be weeks or even months later, this can lead to serious problems in the short term.
- Consider leasing equipment rather than buying it outright.
- Keep a tight rein on customer credit, and restrict credit periods if you can’t afford it – giving credit is essentially offering a free loan.
- Shop around with your suppliers for long payment periods, and build up a good relationship with them in case you need extra time to pay.
- Apply for extra finance in good time, if you think you’re going to need it.
Using an accountant
All but the smallest businesses can benefit from having an accountant to take care of their books. A good accountant will probably save you more than the cost of their own fees – as well as freeing up your time to run the business.
Accountants can take care of:
- your books
- management accounts reports
- financial statements
- tax returns
- your payroll
- filing accounts with Companies House (for private limited and public companies)
- tax planning
They can also advise you on accounting systems and the best sources of finance.
Recommendations are the best way to find a reliable accountant. Otherwise, choose a few likely firms and speak to each of them to see what they can offer you. A good firm should ask about your business in detail, and make recommendations about what services you’ll need.
Remember to ask about their fee structure and qualifications. Review the relationship over time to make sure it’s still working for you.
This article is provided only for general informational and educational purposes. It is not offered as and does not constitute legal or other professional advice on the subject matter in question. You should not act or rely on information contained in this website without first seeking professional advice on the subject matter in question.