Bookkeeping for Small Businesses Guide
What is the definition of bookkeeping?
The first step in the accounting process is bookkeeping. It has to do with how financial transactions are documented and organised in your business’s books.
When a supplier is paid or a client makes a payment, for example, this information must be tracked and recorded. You’ll be able to maintain track of your business’s incomings and outgoings and, as a result, ‘balance the books’ if you do it correctly. Unlike accounting, however, bookkeeping does not include the reporting and interpretation of financial data.
What is the significance of bookkeeping?
The processing and storage of your business records and financial statements is referred to as bookkeeping. It is critical that you keep up with your company’s financial concerns. Accounts receivables, payables, corporate tax, liabilities and equity, and other financial activities are only a few examples.
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Having sufficient bookkeeping processes in place can assist you in the following ways:
- When it comes to paying suppliers, you should be aware of the due dates.
- make it possible for you to keep track of consumers who owe you money
- process sales invoice paperwork
- Examine the company’s cash flow, such as paying bills.
- account for profit and loss and balance sheets
- create financial reports for the company
- forecasting and making future projections
You must preserve and store accounting documents for a minimum of six years as a business owner.
Is it necessary for me to hire a professional bookkeeper?
Many small firms and sole traders rely on the best small business accountants or accounting software to keep track of their finances.
This entails handing over all of your books and records to the bookkeeper, who will process the paperwork on your behalf. The majority of bookkeepers are willing to come to your offices and handle your bookkeeping or give online accounting solutions. This bookkeeping software is a computer programme that acts as an accountant and bookkeeper for your company, keeping track of your financial data.
Other business owners will perform their own bookkeeping or enlist the help of a family member. This will entail:
- Creating sales estimates and invoices
- Invoices for sales and purchases are processed.
- VAT returns preparation
- Other expenditures are being processed.
- Reconciliations of bank accounts (making sure that all items have been recorded)
- Reconciliations of petty cash
- Debt collection
- Suppliers’ payments (with appropriate documentation e.g remittance advice)
- Keeping track of consumer payments
- Wages are being dealt with.
Some business owners believe they can handle all of the above chores on their own, which will save them a lot of money but take a lot of time. Others may perform parts of the chores themselves, but outsource others, such as payroll or VAT, to professionals.
Is there any software that can help?
Software can be extremely beneficial, especially when it comes to simple bookkeeping for a small business. There are several software providers to choose from, each offering a different set of services and features, ranging from the most basic to the most advanced.
Accounting software can include the following features:
- Recording revenue and expenditure, financial reports, and budgets are all basic accounting activities.
- Creating invoices and purchase orders, setting up automatic billing, processing single and regular payments, and bank reconciliation are all examples of automation.
- Tax preparation — filling out and filing tax returns online.
- Inventory management — keep track of stock levels, sales, and purchases.
- Timesheets, salary calculations, payslips, and HMRC submissions are all part of payroll processing.
Basic Guidelines for Proper Bookkeeping
Make a New Company Account
There’s nothing worse than having to sift through a mountain of statements in order to uncover one small but crucial piece of financial information. This is frequently the case if you haven’t separated your personal and corporate cash, as they will always merge into one account, making it simple to lose track.
You can keep your personal finances and professional operations distinct by opening a new bank account, ensuring that there is no confusion between the two. When it’s time to complete your books, you’ll have no trouble locating the financial data you require.
Set aside money in your budget for tax purposes.
Rather from being caught off guard when the taxman arrives, it’s a good idea to budget for tax as you go so you don’t have to pay a large sum all at once. If you have a savings account or something similar, it may be a good idea to set aside a portion of your salary so that you may pay off your tax obligation quickly and with the confidence that you have money saved.
Organise your files at all times.
If it’s already a pain to browse through one account for both personal and corporate finances, crowded records will make bookkeeping considerably more difficult.
You know exactly what is stored where when your records are in good form and well-organised, so you save a lot of time. If you’re too busy and approaching tax deadlines, you’ll be grateful that you took the effort to organise your documents so that you know exactly where to look.
However, make sure you keep your documents organised on a regular basis, not just when you need them.
Keep a record of your expenses.
It might be difficult to keep track of business costs, but utilising a business credit card, for example, can help you keep everything organised and trackable. The simplest method to achieve this is to categorise your bills into different sorts of expenses. This will make things much easier.
Car mileage is a good example. You may keep track of your mileage and note how far you’ve travelled as well as the charges associated with it if you’re travelling great distances for meetings.
Keep a daily journal
Maintaining regular records is one of the most basic guidelines to follow. It’s much more difficult to track the financial state of your firm if you don’t keep reliable daily records.
Implement a system and stick to it so you can keep correct records every day and avoid mistakes when it comes time to file your taxes.
Make a paper trail
It’s critical to leave an audit trail if you’re doing your books manually. If you can quickly and easily retrace your financial activities, your record-keeping will be much more effective – which is why software is a wonderful alternative to explore because it can accomplish this for you.
An audit trail ensures that your invoices are in order and that you can easily retrace your actions if you make a mistake.
Keep a close eye on your receivables.
Late-paying clients are never a pleasant thing, and they can disrupt your cash flow. Make sure you keep track of when your receivables are due and don’t wait until they’re past due to act. See if you can come up with a plan to obtain the money you’re owed as quickly as possible; the longer you wait, the more your cash flow will suffer.
Keep in Mind Tax Deadlines
For everyone, a tax deadline can be stressful. Make the simple step of creating a reminder for yourself so that you have enough of time to complete your tax returns without making any mistakes. By keeping correct records, you can ensure that your returns are submitted on time, and HMRC will not pursue you for any inaccuracies.
You also avoid any unwelcome fines.
Begin Using Software Right Now
Making Tax Digital is a new government initiative that does exactly what it says on the tin. Tax will go digital, which is a positive thing because you won’t have to save mountains of papers and receipts because year-long books can be completed in minutes.
A digital app helps you keep track of your incomings, outgoings, and everything in between, making it easier to manage your finances. While it may appear that you will have yet additional load to deal with in addition to your books, this is not the case because certain apps include basic and easy-to-use features that make the entire procedure effective and painless.
So there’s no need to be concerned because a bookkeeping app will make doing your books a lot easier, providing you more peace of mind.