Table of contents
Table of contents
When you start a business, whether it’s on your own as a freelancer, with someone else in a partnership, or as a limited company, you’ll need decent bookkeeping processes in place to keep the cogs turning.
But where do you start if you aren’t entirely sure what bookkeeping is, or how it works?
We’ll guide you through what businesses need to do to comply with their bookkeeping responsibilities, why it’s important, and ways to complete your bookkeeping successfully.
Bookkeeping is the process of recording every single transaction that happens in your business, such as the money that comes in and goes out of your bank account. It’s more than that though, because bookkeeping also allows you to record other financial events, such as the depreciation of an asset.
In that respect, bookkeeping basically means gathering information about your business, and laying it out in a consistent format.
Apart from the fact that keeping financial records is a requirement, managing your bookkeeping essentially allows you to take control of your business’s finances:
For example, if you sometimes use your car for business, you can include records in your bookkeeping which show how many miles you’ve driven for business purposes – ready to claim tax relief on your mileage!
Bookkeeping allows you to look at the past, present and future of your business.
You’ll be able to monitor payments you need to make further down the line, such as salary payments to employees or supplier invoices that you haven’t paid yet. Keeping good records also allows you to stay on top of amounts that have been received and spent, as well as unpaid invoices your business is owed.
This level of information helps you run your business more efficiently, such as being able to manage your cash flow.
Let’s say you need to buy a new piece of equipment which costs £15,000.
You’ve just been paid £20,000 by one of your customers, so the money is sitting in the business’s bank account ready. When you check your bookkeeping records, you spot an invoice from one of your suppliers which shows you need to pay them £10,000 by the end of the month.
Knowing that you need to make that payment reduces the risk of the business spending money that it’s already committed to pay elsewhere. Crisis averted!
Yes! HMRC require you to keep bookkeeping records, no matter your business structure. This is because they form the basis of every tax return you send, and your tax returns must be accurate!
HMRC can ask to look at your business records at any time, so you need proof everything you’ve put in your tax return is correct. You basically need to be ready to back yourself up.
Each and every transaction that takes place within your business must be recorded in your bookkeeping.
These transaction records could include purchases your customers make, invoices you receive and send out, overseas transactions, money you move from one bank account to another, the wages you pay your staff… It really depends on your business!
You don’t need to use bookkeeping software, although VAT registered businesses do need to keep digital records to comply with Making Tax Digital rules. This doesn’t necessarily mean using bookkeeping software though, so you might use another digital method, such as spreadsheets.
That said, VAT-registered businesses do need to use compatible software when they submit their VAT returns, so choosing bookkeeping software that also allows you to make MTD-compatible VAT submissions straight to HMRC can make life easier, rather than using separate bridging software to submit your return.
This is down to the needs of your business. You may find you need one, both or none. Not a very helpful answer, but it’s an honest one! Consider your own abilities and resources, and what it is you’re trying to achieve.
Getting to grips with bookkeeping can be tricky at first, so we’ve put together our top tips.
The first step is to choose how you’d like to record all your transactions, expenses, etc.
If you run a small business with a few transactions each month, you may find writing everything down in a book works for you. Or, if you enjoy spreadsheets, that would also be perfectly fine too.
Software is becoming the most popular way of doing your bookkeeping, largely because you can automate lots of the tedious tasks and be MTD compliant at the same time.
For example, bookkeeping software (like Pandle – hi!) allows you to automate your banking with Bank Feeds so you don’t need to manually enter every single transaction that happens in your bank account.
There are lots of bookkeeping software providers on the market, allowing you to shop around and choose what works best for you.
Double-entry bookkeeping is the process of recording every transaction twice to show that some sort of exchange takes place. It sounds more complicated, but it can help you spot accounting errors quickly, keeping your books accurate.
This is good practice for any business – but worth noting that it’s mandatory for limited companies.
It’s a requirement that you keep all your receipts and invoices ready to hand if HMRC ever need to cross-check anything. You can put them in a physical place, store them on your laptop, or upload them to your bookkeeping software.
If you use software, you can simply snap a photo of your receipt and upload it, so it’s stored ready for when you need it. Meaning there’s no need to rummage through receipts in your wallet! It also means you don’t need to worry about storage space – everything will be hosted on your software provider’s server.
If you’re not a limited company then keeping your own finances separate to those of the business isn’t a legal requirement, but it does make things easier. Limited companies are required to use a separate business bank account to those of their owners (because they’re a separate legal entity).
For example, keeping them separate makes it simpler to account for your business expenses correctly, without the risk of overclaiming (or underclaiming – neither are good!).
It’s worth checking your bookkeeping whether that be weekly, monthly or every quarter, to ensure everything is up to date. It’s also good to check your financial reports so you know what’s what – hopefully before it becomes a problem.
If you use bookkeeping software, then check to see if it includes any financial reporting tools which will do the hard work of producing reports for you – saving you even more time.
It’s always best to put money aside as you go so you can pay your tax bill on time. Good bookkeeping will allow you to track how much tax you’re expected to pay so there’s no surprises when your bill is due.
You’ll need to think about the current tax rates and thresholds, as well as National Insurance.
If you own a limited company, you’ll need to think about tax on your own income, when you submit your Self Assessment Tax Return, as well as your Company Tax Return and paying Corporation Tax.
It seems a lot but don’t worry – it’s nothing good bookkeeping can’t assist you with!
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!
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