Boring but essential, bookkeeping the right way
From opening a new business account to assigning sufficient funds to enable you to pay your business tax, managing your records efficiently and effectively is an essential contributor to the success of your business. Our simple guide to bookkeeping should offer you an insight into how to manage your business finances effectively
Opening a business bank account
Setting up a business account is the first and most important step in organising your business finances. There are inviolable rules which must be adhered to if good financial discipline is to be achieved in running your accounts. Keeping your personal and business accounts separate and distinct is the first cardinal rule in managing your business finances. It will enable you to give yourself an accurate, unadulterated picture of the financial health of your business and broaden your understanding of your returns, losses and profit.
Your bookkeeping should allow you to identify and reserve sufficient funds within your business account to allow for the payment of invoices and taxation. Also, rigorous bookkeeping will enable you to keep reserve funds for unforeseen circumstances and events. The financial resilience that good bookkeeping brings will enable you to be more nimble in responding to business opportunities, ensuring your brand has the funds to respond without jeopardising financial health. This will enable you to be more adventurous and progressive, both key ingredients for success.
Finally, the possession of a business credit card you manage with discipline can be a useful tool for establishing a credit score, helping you save money in the long term whilst giving your brand access to loans with a relatively low-interest rate.
Business savings accounts
It can be useful to keep a separate savings account for your business to allow you to save for something that will allow you to expand your business without arranging an expensive loan. A savings account can also enable you to avoid getting into business debt as you may use such an account to accrue funds for the payment of future taxes that will become due. Your bookkeeping will enable you to account for other future expenses and help ensure that you put sufficient funds aside for business liabilities. Be aware of your upcoming tax deadline. Good preparation helps take away the stress of suddenly struggling to get your accounts in order. Disorganisation often leads to unforeseen expenses and penalties for missed payment deadlines. Keep HMRC off your back by making sure your returns are sent off on time. Try setting a reminder on your calendar well in advance of the deadline
Keep your records organised
Ensure your finances and your financial forecasts are easy to track and follow. Poorly ordered accounts reflect a lack of professionalism and experience, which can be off-putting to potential investors and new clients. Ask yourself, 'do I have the necessary skills to stay on top of my financial records or should I invest in the services of a good bookkeeper to take responsibility for this work.' You will have enough responsibilities running your business without the distraction and stress of taking on this time consuming and skilled work yourself. If you do decide to take on this responsibility, Quickbooks, GNU cash and Traverse are useful software options for helping you to order your accounts. The taxman looks favourable upon well-organised accounts. Organisation is a work in progress so keep refining that process, and soon, it'll become second nature.
Track your expenses
Ordering your accounts rationally is a crucial way to understand and track where your money is going and can make the task of managing your business much easier. Recording business mileage is an excellent example of an expense that needs to be tracked so that it can be used to offset against tax, but so many businesses fail to do this.
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Stay on top of your accounts receivable
Late invoicing disrupts the flow of cash into your business, often resulting in late payment or failure of your debtors to pay at all. This lack of discipline disrupts cash flow and can undermine the financial integrity of a business. Be assertive and responsible and ensure all invoices are issued promptly and paid within the agreed timeframe. Late payments will often directly impact staff salaries, supplies, and rent, resulting in poor credit scores. Be meticulous about tracking when your receivables are due, and don't waste time when they're overdue. If your debtors cannot pay these amounts on time, work out a payment plan to ensure your cash flow isn't compromised. It's good practice to send prompts to receivables, if you suspect a late payment, open discussions with that client or business to be active in finding a solution to the issue before it develops into a bigger problem, for you and for them.
Assess your tax liabilities
Making Tax Digital is a government initiative geared towards simplifying tax returns, eliminating paper format and replacing manual with digital processes. Going digital with your tax returns will save you time and money and give you better insight into the financial worth of your business.
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