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The Basics of Bookkeeping and Accounting

The new tax year is well underway so now is a good time to check your approach to your record keeping and make sure you are making the right decisions for you and your business. It is not always easy to know what those decisions are and sometimes your self-belief will dip a little. Don’t let the natural peaks and trough of business pull your dramatically in either direction – learn to keep a even path and keep tethering yourself back to it.

For that to be possible you need a sound financial core at the heart of your business. That does not mean you have to make masses of profit or cannot survive those fairly inevitable tough times, but it does mean that you need up-to-date financial records to draw conclusions from. The more information you have about your cashflow and how your business operates the more chance you have of predicting moments of affluence and hardship and put in place preventative measures or request extra support to capitalise on them.

Ultimately, business comes down to bookkeeping and accounting – the numbers have to add up! These are familiar terms that we may understand and often try to avoid at all cost. The moment you gain a little of enthusiasm towards them and open a book, or scan a website to learn more, you retract in horror at what it can involve. And yet, if you have a methodical system, maintain some legible records then you can survive that initial terrifying moment of realisation. Bookkeeping and Accounting all boils down to detailing your business income and expenditure.

Simple bookkeeping

For the most simple set of accounts you need:

  • a cash book to record money entering and leaving the business
  • a sales ledger, which details money received and owed
  • a purchase ledger, which logs outgoings
  • a wages book, which details salary payments and National

Insurance contributions

These books will most likely exist within a spreadsheet in some computer software these days so you will be able to see everything on a single screen.

It is also a good idea to start as you mean to go on. So get a box file and divide it into months so you can keep cash purchase receipts. Then get a couple of files and store unpaid purchases in one and paid purchases in the other.

For cash, cheque and card payments, till rolls are an ideal means of updating your sales ledger. If your company will be issuing invoices then sales paid and sales unpaid need to be separated into files electronically or with another couple of ring files manually.

You need to keep just about every piece of paperwork that you receive, no spam though, that can be shredded. Keep bank and card statements, fill out paying-in books and cheque book stubs meticulously, maintain payroll records (if you employ people) and VAT records (if you’re registered). For help in any of these areas go to the PAYE or VAT sections.

Electronic bookkeeping systems

The software for basic accounting may not be as expensive as you think. A budget of £100-£180 would get you basic accounting software and you can choose one that comes with free support. The most popular software for electronic records (spreadsheets) is Microsoft Excel.

There are also dedicated accounting packages which are easy to use. See the Mother website (www.managewithmother.com/about/cashbook) for the bookkeeping software that ABC backs. It is a great tool and we can recommend it because we have several clients that are very happy with it.

Software is ideal because any errors can be corrected quickly; you can get financial reports with the click of a button. Any money you owe or is owed will be brought to your attention. You can also see sales patterns and costs, which helps with forecasting and budgeting for your business.

If you cannot afford a full-time bookkeeper then you will have to do much of it yourself. As your business expands the role of a bookkeeper can be combined with other duties, such as office or HR manager. A part-time bookkeeper may be more viable for small to medium businesses.

It is possible to do it yourself and then get an accountant to take care of the complex bits that quite frankly would give you sleepless nights and a nasty tension headache. A small business will be faced with the chore of doing the books after hours, or at weekends. Once your business expands then the quality of the accountant you choose could have a great impact on your company.

The best advice when choosing an accountant is to follow your gut feeling, see how up front they are about their fees and test their knowledge before signing up with them. Don’t go for the one up the road before getting a feel for whether they are right for your business.

Hopefully, you have the knowledge you need to build an effective accounting and bookkeeping core at the heart of your business now. If done right you will never regret the extra effort and organisation you put into it from the start. Stress in these areas tends to come when records have been neglected and a years worth of transactions are only known to have taken place because of the bank deposits made. Do it the smart way and get on top of the basics early – you won’t regret it!


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Business Records Check: Something for all businesses to keep in mind

HMRC over the next year are sending letters to randomly selected businesses (mostly cash businesses such as taxi firms, hair dressers etc.) asking for a Business Records Check.

This is a check on your business records which means they will look into how you manage them and what information you have immediately to hand. This is to make sure that you are able to complete your tax returns correctly and pay the right amount of tax at the right time to avoid interest and penalties. It will also flag up any businesses that are submitting inaccurate tax returns and keeping inaccurate records.

On the letter they will have scheduled a phone call to the business owner/director/manager when an assessment will take place. This phone call could then lead to a HMRC visit.

If you receive one of these letters you should get in touch with your accountant. They should then:

  • arrange a conference call with HMRC so you have their support throughout
  • If a visit comes out of it, arrange it to take place on their premises so again you have the full support and suitable facilities on hand to accommodate a HMRC inspector.

This is going to get a lot more popular over the next year so you need to make sure your accountants are aware of this possibility and be prepared to support you when you need it.

 

For more detailed information on Business records checks we encourage you to visit this link and have a look at the compliance checks at the bottom of the page that HMRC may enforce: http://www.hmrc.gov.uk/dealingwith/bus-record-checks.htm

 

You can always call ABC on 01427 613613 if you are worried about this or would appreciate some advice.