Small Business Accounting: All You Need to Know - More Than Accountants

Small Business Accounting: All You Need to Know

Understanding the fundamentals of small business accounting is critical to the development and management of a successful company.

Why?

Because it provides you with critical data that will enable you to make better decisions regarding your company’s operations, strategy, and growth plan, both large and little.

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What exactly is accounting for a small business?

The process of recognising, documenting, measuring, and evaluating financial data in a small organisation is known as small business accounting.

You can track your profit and loss if you keep track of your financial records, costs, and revenue. It also aids in the management of your assets, liabilities, and equity values.

While this simplifies cash flow management, you also have a legal obligation to ensure that your accounts appropriately represent this information.

Beyond the fundamentals of a small business accountant UK, it’s critical to comprehend why it’s important.

Simply put, accounting’s goal, like that of any other measurable data stream, is to assist you in planning, evaluating, and optimising your entire firm.

Accounting for small businesses can help you with the following things in general:

Creating a budget and a strategy
Setting and sticking to a business budget allows you to align your spending with your company’s objectives, forecast your earnings, and keep yourself accountable.

A budget, for example, can help you evaluate which resources are necessary and which are optional, so you can avoid wasting money on superfluous or “nice to have” assets if your cash flow does not allow it.

A well-thought-out budget can also assist you in obtaining funding or raising venture capital by providing potential investors with a clear picture of your spending demands and projected spending goals.

Making judgements
Most of the high-level decisions you’ll make as a business owner will be influenced by accounting.

Maintaining a positive cash flow, for example, is one of the important indicators of a company’s long-term viability. Financial reports can assist you identify potential areas where you can make changes to bring in more cash if you run into cash flow challenges.

This could involve raising product prices to boost sales or finding a new supplier with cheaper costs to boost profit margins.

In any case, having organised and up-to-date financial data allows you to assess a problem (or an opportunity) and make faster and more informed decisions.

Resultant business
Analyzing your key performance indicators (KPIs) might help you figure out whether or not you’re on track to meet your financial objectives. You won’t be able to tell if you need to change your strategy or optimise your goals unless you have these reports.

A win would be if you set a revenue goal of £100,000 in your first year of business and met it. However, if you spend three times as much as you anticipated, you may end up losing more money than you earned.

Financial reports allow you to assess not only how well your company is doing, but also whether your goals and objectives are in line with your short- and long-term growth strategy.

RELATED: Bookkeeping for Small Businesses Guide

To get started with small business accounting, you don’t need to be a math wizard. Let’s go over seven fundamental ideas to help you get started.

1. Open a separate current account for your business.
You must have a separate account for your business finances if you’re registered as a limited company. While you’re not legally compelled to keep things separate if you’re a sole trader, it’s a good idea to do so to avoid any headaches. Check your personal bank account’s terms and conditions because some state that if the account is used primarily for business purposes, it may be cancelled.

There are two basic stages to setting up your business account:

A business account is the best option. Consider transaction fees, withdrawal fees, introductory discounts, customer service, and administrative features when selecting an account.
Make an account to save money. This will aid in the organisation of your finances as well as tax planning. Set aside a percentage of each payment you receive for taxes if you’re self-employed.
Your business account should ideally include a number of features that make managing your finances simple.

2. Why should you hire a bookkeeper?
Because entrepreneurs wear so many hats, their business accounts are sometimes neglected. If you make any accounting blunders, this can cause complications down the future.

Here are a few examples of how accountants can help you:

You can track cash flow and forecasts with accurate records, which can help you evaluate business performance and make better business decisions (as mentioned above).
Having your accounts in order will make it easier to acquire a loan (especially if you have a positive cash flow) and will make tax season a lot more fun.
More time spent on creating and growing your business means less time spent on bookkeeping.
An accountant can assist you with everything from budgeting to tax audits, loan applications to VAT registration.

When it comes to finding the correct accountant for your company, it’s a good idea to figure out what you need, research the accountant’s fees, and get an engagement letter. For their bookkeeping and accounting services, most accountants charge flat monthly prices.

3. Keep an eye on your spending.
Keep track of your spending and outgoings at all times. You may run into cash flow problems if you don’t pay attention to your costs (especially in the early days of running your business).

4. Create a system for invoicing.
The heart of your small-business accounting is a well-oiled invoicing system. An invoice is created based on the products or services that have been sold, and it must be completed quickly and accurately. The faster you send your invoice, the better your cash flow and peace of mind will be.

5. Establish a bookkeeping procedure.
You may hear the terms bookkeeping and accounting used interchangeably when setting up your small business accounts, as indicated above.

The two, however, are vastly different. Accounting is the process of categorising, analysing, and summarising financial transactions, while bookkeeping is the practise of recording them.

6. Figure out how much tax you’ll have to pay as a company.
The weight and difficulties of small business accounting make many small business owners feel overwhelmed.

Filing your taxes may be a difficult and frightening task. You’ll be OK as long as you finish it on time. Even if you miss a deadline, notifying HMRC of your circumstances can make it much easier to catch up.

You may be required to pay several sorts of taxes depending on the nature of your business.

7. Determine if VAT registration is required.
If your yearly turnover (sales) is £85,000 or more, regardless of your business structure, you must register for value added tax (VAT). If your turnover is below that criteria, registration is still optional.

That implies you’ll charge your clients 20% VAT, which means you’ll add 20% to your invoices and set aside 20% of what they pay you.

You’ll be entitled to recover any VAT you paid on business-related purchases and expenses at that point. In addition, you must pay HMRC the difference between the two. On a quarterly basis, VAT returns and payments are due.


Keeping track of your small business’s finances isn’t as difficult as you may believe. It’s easier to stay on top of your finances if you’re well-organised.

Getting assistance from a certified accountant can, of course, make life a lot easier. Ask other entrepreneurs for referrals, and make sure you pick someone who knows and cares about your company.

RELATED: When to Hire an Accountant

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