10 ways to successfully simplify your accounting in a small business
If you are self-employed or the owner of a small firm, you should first congratulate yourself on taking on this exciting challenge. As a professional, it can be a huge step forward. However, if you’re new to it, the accounting and taxation sections may appear to be a nightmare at first. However, if you are well-organised from the start and enlist the assistance of online accountants for small business, you will be able to master it in no time.
Open a bank account for your business.
Setting up a specialised business bank account is the first and most significant step. Managing your business money requires organisation, and muddying the waters by combining business and personal activities in your bank account can only make your life more difficult.
It is totally up to you whatever bank you choose to create an account with. It’s always a good idea to shop around for the best deal, comparing both classic High Street banks and newer challenger internet banks.
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You’ll also want to make sure you have a company debit card (or even a business credit card), because paying with a card helps improve your business’s credit profile and ensures that everything is documented in the bank’s online records.
Keep track of all of your expenditures.
It is critical to keep track of all expenses incurred by your company. You can miss out on some major spending if you lose track of it at first. As a result, it’s a smart idea to keep your business and personal bank accounts separate. It will make tracking business expenses much easier.
You should keep in mind that any expenditure made solely for the purpose of your firm can be considered a business expense. This covers items such as office furniture, laptops, computers, business phones, clothes, industrial equipment, and much more.
Make a habit of keeping track of your finances.
It’s all about keeping track of your incomings and outgoings in bookkeeping. It’s one of the most crucial financial management chores you’ll have to do as a small business owner; if you scrimp on your bookkeeping, you’ll lose track of how much money your company has to pay taxes or keep it running.
Poor bookkeeping has led to the demise of many a small firm in the past, so learn from your colleagues’ mistakes and get into a bookkeeping routine as soon as possible. Establish a pattern and adhere to it, whether you opt to spend half an hour each day updating and balancing your books or block aside an hour or two at the end of each week. In the long run, you’ll thank yourself.
Make a Payment Plan for Yourself
Owning a business and being able to pay yourself is a thrilling experience. You can save a lot of money by doing this correctly. The ideal strategy to avoid taxes in a limited company is to take your compensation in the form of dividends and a salary that is below the relevant National insurance threshold.
Having a separate company account and paying yourself a salary in your personal account can also help. As a corporate director, you can be paid in the same way as any other employee. To do so, you’ll need to set up a payroll system that allows your salary to be treated as a business expense, allowing you to save money on taxes. So, once you’ve arranged your bookkeeping and costs, you can figure out how much compensation you need to pay yourself. This can be a beneficial activity for your company’s health.
Set Up Your Payroll System
As previously said, if you decide to pay yourself a salary as a director, you must set up a reliable payroll system. This system must be RTI (Real-Time Information) compliant in order for you to be in compliance with HMRC.
If this process appears to be too difficult, you can always hire a professional financial accountant to assist you in setting up the payroll system and organising your finances.
Recognise your tax duties.
Understanding the many tax duties that come with owning a business will be your next major task.
You’ll need to file a Self Assessment with HMRC every year, regardless of your setup (the deadline is the 31st January following the tax year end on 5th April for online submission). HMRC does a Self Assessment to determine how much Income Tax and National Insurance you owe on any income that isn’t taxed at source.
We usually advise filing your Self Assessment early, since HMRC receives a high volume of enquiries and help requests from customers attempting to file in the final days before the 31st of January.
Other taxes to consider include import tax if you’re bringing in stock from another country, and business rates if you have a business location.
Know your revenue, profit, and cash flow.
This relates to our prior advise regarding keeping track of your finances. While accounting is primarily concerned with keeping track of your incomings and outgoings, accountancy is more concerned with understanding your turnover, profit, and cashflow.
Your total net sales during a specific time period, such as a financial year, is your turnover. Net sales is calculated by combining all of your invoices together and subtracting any refunds or reductions you’ve given your clients. One issue to keep an eye on is whether your annual turnover approaches or exceeds the VAT threshold of £85,000 in a rolling 12-month period. If it does, you’ll need to register for VAT. There may be compelling reasons for you to voluntarily register for VAT, and an accountant can assist you with this as well as advise you on the VAT programme to choose.
You might want to keep an eye on factors like your profit margin, or how much you make relative to your costs, as part of your profitability analysis (expenses). You might look at how much you charge clients, which ones are the most profitable for you – and get rid of the ones that aren’t, especially if you have any regular late payers.
You should also review all of your providers on a regular basis to ensure that you’re receiving good value for your money and aren’t paying for services you no longer require. Nobody wants to become a zombie corporation!
Cashflow is the third thing to keep an eye on. At its most basic level, cashflow management entails ensuring that the quantity of money coming in exceeds the amount going out. This enables you to accumulate a financial reserve that will help you get through a period when your income is cut.
Attempt to Obtain Funding
There are several financial sources available to you. These can take the shape of government assistance for new enterprises, loans, grants, or other incentives to help a startup succeed. Even a tiny cash boost can help you get your firm up and running quickly. As a result, keeping up with the newest startup news is always a good idea.
Make an appointment with an accountant.
The best approach to set up and maintain track of your bookkeeping and small business accounts is to hire an accountant.
An accountant will remind you of crucial tax dates and payments, teach you how to keep your finances in good condition, and advise you on permitted spending and how to report them so you may save money on taxes.
They can assist you in calculating how much tax and National Insurance (NI) you’ll have to pay every six months or quarterly for VAT. They’ll also make sure you don’t forget to make a payment on account, which happens to a lot of people every year.
Learn, improve, and expand your knowledge.
The actual key to success, as with anything else in life, is to keep learning and developing. All of the actions we’ve listed above are critical for managing your small business accounting, and some of them will take some time and effort to get into the habit of. With that stated, there are lessons to be learned and strategies to grow wherever your self-employed journey takes you.
If you’re falling behind on your bookkeeping, having trouble understanding your business finances, or simply want to focus on the things you enjoy rather than your finances, it’s time to hire an accountant.
If you’ve put off your Self Assessment for the second year in a straight, take note of the aggro and set reminders for September/October so you can complete it before Christmas next year.