When you are just starting out and trying to navigate the world of independent work, learning how to manage your bookkeeping can be intimidating.Here’s a guide to bookkeeping and how to do it correctly.
What is bookkeeping?
Bookkeeping is a crucial part of your business’s finances, but it can be one of the most difficult parts. You didn’t become self-employed to enjoy spreadsheets or recording expenses. You are happiest doing what you love, whether it’s running a craft business, selling clothing online, or giving a great service to customers.
It is the responsibility of bookkeepers to maintain accurate records of all business expenses and costs. This helps to understand the profitability of a company, and is also necessary for filing your annual tax return.
Bookkeeping includes processing invoices, reviewing statements of bank accounts, and chasing any unpaid bills. Customers may also receive a statement of accounts if there are multiple invoices owed.
What is the difference between accounting and bookkeeping?
In business finance, accounting and bookkeeping can be confused as the two terms overlap.
Bookkeeping is an everyday administrative task that keeps track of how much money your business earns and spends.
Accounting is the highest form of finance for a business. It looks at financial health through reports and projections.
Accounting tasks include financial reporting and auditing. For example, creating a balance to show assets and liabilities, or a cash flow projection. These reports can provide you with a better understanding of your business, which is useful for making business decisions.
How to do bookkeeping
Are you unsure where to begin when it comes time to balance your books? Here are five of our top tips.
1. Select an accounting method
You’ll first need to decide which accounting method is best for your business – cash basis accounting or conventional accounting. The best accounting method for your business depends on the way you have set up your company. If you are unsure, it is best to consult an accountant.
2. Organise and create a system
Your business’s size will likely determine the way you organize your financial administration. Accounting software is available in many forms, both free and paid. However, you may be satisfied with an Excel spreadsheet.
It’s important to keep your bank statements, invoices and receipts organized.
3. How long should you keep your financial records?
Keep your records of business for a minimum of five years following the deadline for Self Assessment. Limited companies must keep their accounting records for a minimum of six years. This is explained in our guide to recordkeeping.
4. Tax refunds on Allowable Expenses
When calculating your tax, you can deduct some of your expenses as a self-employed person from your annual turnover. You don’t want to be one of those small businesses who lose thousands in unclaimed expenses. This could be because you lost receipts, or you didn’t understand what you could and couldn’t claim.
5. Budget for your tax bill
You may not be able to estimate the amount of tax you will owe HMRC when the deadline for Self Assessment on 31 January arrives, but you should budget enough money to cover the bill.
Payment on account is the term used to describe the payment of your tax bill for the current year and the first instalment of the bill for the following year on the same date.
Final Thoughts
To conclude, bookkeeping is a vital skill for small business owners to ensure compliance and financial health. Understanding its principles and using modern tools allows businesses to track transactions efficiently, analyse performance and make informed business decisions. It doesn’t matter if you manage it yourself or hire professionals to do so, ensuring accurate bookkeeping is essential for long-term growth and success. Contact us as we offer top bookkeeping services in uk.
