Bookkeeping for business: A guide to managing accounts as an SME

Bookkeeping for business: A guide to managing accounts as an SME

 In Advice, Blog

When you first start your business you’re full of ideas and plans for growth. Yet, one of the most important business functions, that often gets overlooked is getting a handle on your accounts.

Managing your numbers is essential to avoid financial issues down the line. From cutting accounting costs to finding the best bookkeeping system, this article for sole traders, partnerships and those running a limited company or LLP provides some suggestions to take the headache out of doing the books, so you can focus on running your business.

The role of bookkeeping in accounts

The term bookkeeping and accounting are often used to imply the same thing. In fact, bookkeeping forms the base on which your accounts are prepared.

Bookkeeping involves the recording, storing and retrieval of financial transactions. Bookkeeping can be split into four functions:

  1. Monitoring money into the business (sales)
  2. Monitoring money going out of the business (expenses)
  3. Recording the purchase/stock cycle
  4. Taking note of business assets and liabilities (loan repayments, taxes)

Things that are typically recorded in bookkeeping include:

  • Billing for goods sold or services provided
  • Recording of receipts from customers
  • The verification and recording of invoices from suppliers
  • Recording a payment to a supplier
  • Processing employees’ wages and the recording of any relevant paperwork

Why bookkeeping is important for small businesses

It’s important for any business owner to keep accurate records that track the financial activities of the business, including, what is coming into the business, what is being paid out and what is due to the business by customers.

You may be asked to show copies of these transactions if you apply for a business grant or for a loan from a bank, so it’s important to keep organised and up to date records.

When you register as self-employed you are required to provide details of your income to HMRC through your self-assessment tax return. If you are working through a limited company, you must submit annual accounts to Companies House and also pay Corporation Tax on the profits that your company makes. Failure to supply this information on time could lead you being issued with fines and penalty charges.

Keeping accurate financial information makes it easier to meet these deadlines and avoid paying hefty fines and penalties.

Keeping on top of your bookkeeping will also help you to find potential financial problems and tackle them before they become a big issue. It can also help you to spot trends in your finances which enables you to put plans in place to help you through the quieter months.

How to keep accurate financial records for your small business

As we explained previously, it’s important for the financial health of your business to keep accurate financial records. Here are our top tips for keeping everything in order:

Get into the habit of asking for receipts

On personal purchases you may not be bothered about getting a copy of the receipt. As a business owner, you need to get into the habit of asking for a receipt for every business expenditure, even if it’s only for a small amount. Small expenses can quickly build into a large amount.

Keep your bank accounts separate

If you operate as a sole trader, partnership or as a limited company, you should have a separate bank account that you use for the business. The money held within the limited company belongs to the business and not yourself. This means you can’t use the money for personal purchases unless it’s for a legitimate business expense.

Check your bank statements regularly

One of the best habits you can get into is checking your bank statements as soon as you can, or regularly check transactions on-line using a convenient banking app. It is much easier to rectify a problem the earlier it is spotted. Checking your statements every month also helps you to understand your business cash flow and plan ahead for busier or quieter periods.

Set aside time for bookkeeping

As a busy business owner with an exhaustive to-do list, finding time to manage your books may be difficult, but it’s essential that you do. Find a time that works for you and a place where you won’t be disturbed.

Find a bookkeeping system that works for you

When considering what bookkeeping system to use, you have a couple of options to choose from. The first one being the manual bookkeeping method. This is the traditional method of bookkeeping which is still in use by some small businesses.

Manual bookkeeping involves the recording of transactions in a journal or a ledger, often on a spreadsheet. Some businesses prefer to use this method as it is economical and is suited for recording less complex business transactions.

The second option is using a cloud-based accounting system. There are numerous benefits to using a cloud-based system, some of these are:

  • Financial reports can be prepared when you need them. If you need something at 11 o’clock at night you don’t have to wait.
  • All financial data is securely stored in the cloud. The risk of it getting misplaced or damaged is dramatically reduced.
  • Most systems enable you to take a picture of your receipts and upload it to the cloud using an app on your phone or tablet.
  • Automatic bank feeds save time.

Do it yourself or outsource to an expert?

One of the questions we frequently get asked is, “Can I do my bookkeeping myself or do I need to hire an expert?”

The answer is, it is up to you. You can choose to manage your books yourself, but if you are struggling to keep ahead of your records we recommend that you engage with a local bookkeeping service to manage it on your behalf.

Outsourcing this to a professional could help reduce your accounting fees and it frees up your time to focus on building the business and securing more customers.

As a firm of Chartered Accountants, we have a long history of helping businesses in and around Lincoln, Gainsborough, Newark, Retford, Sleaford and London to manage their records which ensures their books are in perfect order. In your free initial consultation, we will gain a thorough understanding of your business and advise you which cloud-based bookkeeping system is best suited to your business needs. Please get in touch for a free chat to see how Wright Vigar can help you run your business finances.

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