Bookkeeping for a small business is essential if you want your finances to be clear and understandable. In the beginning, you as the business owner will likely take care of the bookkeeping, but as your business expands you may eventually hire somebody else to do it for you.
We understand that the thought of learning how to manage your books can be stressful, especially on top of running your small business. But fear not, as we have created this guide to help you understand the basics when it comes to small business bookkeeping.
What Is Bookkeeping?
In simple terms, bookkeeping is the recording and reporting the financial information that concerns your business. It is a crucial task as it makes budgeting much less complicated and gives you a clear idea of where your business is at financially.
Unlike accounting, bookkeeping focuses on the day-to-day finances of a business. Some of the tasks involved with bookkeeping include:
Recording invoices and receipts
Reconciling bank statements
Claiming back tax for your business
Bookkeeping tracks the money going into the business and the money going out. The payments are tracked using three financial records:
Sales invoice – this is where you record what the business has sold, including invoices that are either paid or unpaid.
Purchase invoice – this shows what the business has bought (including services and products), and what you paid.
Cashbook – this records cash flow, which is everything going in and out of the business’ account.
Keeping books is crucial for financial reporting, especially if your business faces an audit.
Our Top Tips For Bookkeeping
Choose an accounting method
You’ll need to decide on an accounting method for your business, either cash basis accounting or traditional accounting. Traditional accounting records income and expenses on the date of the invoice, whereas cash basis accounting records them on the date when the money is actually paid or received.
Record all of your expenses
By recording your expenses and keeping receipts, you can claim tax back to reduce your overheads. Make sure to keep your business expenses separate from your personal ones so it is easier for you to work out which ones can be claimed against profit to reduce tax.
Keep records of every payment (and try to keep them organised!)
It’s important to record every payment and the date they occurred to be easily found if you need to find them in the future. Keeping your records and documents organised is also important, because not only will it be easier for you, but it will also be easy to pass them over if you decide to get somebody else to do your bookkeeping in the future.
Remember any deadlines
Always pay HMRC on time. Give your clients a payment deadline and keep an eye on any late payers on non-payers. If clients keep missing payments, consider bringing this up with them. Or, if the issue is ongoing and there is no improvement, stop working with them. This will keep your cash flow healthy, and this process is called credit control.
Keep your records for the correct amount of time
You must keep your business records for a minimum of five years after the Self Assessment deadline. How long you must keep your records will depend on the type of company. For example, limited companies must keep their accounting records for a minimum of six years. Make sure you are aware of how long you need to keep your records to avoid any future consequences or confusion.
So there you have our small business bookkeeping guide for dummies. We hope you have found it useful. If you’d like further help, consider reading our other articles as they discuss many different topics related to small business finance and bookkeeping.