In a small business you always need to be in control of the finances. You can help to achieve this by keeping good records - otherwise known as book-keeping.
There are two main reasons to keep accounts - to help you manage and grow your business and to comply with tax requirements.
Accurate book-keeping allows you to:
There are several ways to keep financial records:
No matter how you decide to keep your records, there are certain things that are always good practice.
Keep all your invoices and receipts in two sets of files, one for sales and one for purchases. Allocate a unique reference number to every invoice in and out and note it in your books or on your computer system. Then file the invoices in that order in the relevant folder. That way you can find paperwork quickly if you have a tax or VAT inspection.
Keep records of expenses. You can only offset expenses against profits that are wholly, exclusively and necessarily incurred for the business. So ask for and keep receipts. When you are VAT-registered, it is essential to keep VAT receipts. Without these, you cannot reclaim the VAT element. Log the money you have paid in one section of your cashbook. Assign columns for:
Record your income. Establish another section in your cashbook for the money you receive.
Note the details of each transaction. Divide expenses up into columns with headings such as utilities, insurance, wages, rent, marketing expenses and so on. If you are VAT-registered, you will also need a column for VAT inputs and outputs.
Add up the totals of each column at the end of each month. Then start a new page for the new month by bringing forward last month's totals into the columns for this month. At the end of the tax year, you will have a breakdown of your income and expenses for HM Revenue and Customs.
Control your petty cash. Keep the float at a constant level - e.g. £100 - either in cash, or cash plus receipts. When you need to top up the cash, remove all the receipts to enter into your books properly.
Reconcile your bank account at least once a month. This involves taking the previous balance as shown in your bank statement, adding all subsequent payments in and subtracting those you have made. The new balance should reflect your new bank balance. If it doesn't, either you or the bank has made an error.
Packages each have their pros and cons. You may find that ease of use, good support and comprehensive documentation count for more than price and advanced features. There are several factors to take into account when you choose your computer package.
Outsourcing your book-keeping can free up valuable time and save you money, allowing you to grow your business without hiring more people.
Ask colleagues and friends if they can recommend a book-keeper. Things to consider include:
Issues to address include:
Next, shortlist potential book-keepers. Send them your brief and ask for costs and references, which you should always check.
Choose someone and arrange a contract for the services you want.
Keep evaluating the success of your book-keeping arrangements. Make sure your book-keeper returns all documents promptly each month, so you can't be held to ransom should a dispute arise. Be prepared to change book-keepers if your first choice doesn't work out - keep a list of suitable alternative book-keepers on file.
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