How do you maintain bookkeeping?

DISCLAIMER: We’re commenting on United Kingdom finance legislation.

Documentation is not the primary motivation for most people when they launch a new company. Nobody’s idea of a good time is to sit at a desk for hours adding up receipts or shuffling bills back and forth – unless, of course, you’re just starting out as a bookkeeper or accountant.

Keeping on top of your bookkeeping will not only help you sustain a healthy cash flow inside your company, but it will also enable you to recognise patterns in your financial situation at an earlier stage.

As your company expands, it is absolutely essential that you develop the ability to identify possible financial issues before they escalate into a crisis.

Accounting is an important function in all types and sizes of businesses. However, as owners of small businesses have to balance the many other tasks that come with running and maintaining day-to-day operations, this responsibility frequently falls to the bottom of their priority list. Accounting, on the other hand, is something that should never be an afterthought.

Keeping your accounts in balance can assist in providing a financial forecast that extends several months into the future and can alert you to potential gaps in your finances. In the event that things go difficult for you, having accurate accounting knowledge could even help you save your business.

Accounting is typically relegated to a lower priority for small firms for a number of reasons, including the fact that it is time-consuming and daunting. The administration of one’s company’s finances is regarded as the most challenging aspect of running a small business by forty percent of those who run such businesses. Accounting errors can put a temporary stop to the expansion of a small firm and put the owner in a precarious financial position.

In this piece, we will provide you with a collection of the greatest accounting advice to help you avoid making frequent mistakes that could have an adverse effect on your company.

When you finally have your accounting in order, you’ll be able to enjoy the rewards that come along with it.

Keeping on top of your bookkeeping will help you sustain a healthy cash flow inside your company.

It will also enable you to recognise patterns in your financial situation at an earlier stage.

In the event that things go difficult for you, having accurate accounting knowledge could even help you save your business.

Every purchase and sale that your company makes needs to be supported by a record that details the amount, the date, and any other information that is pertinent to that purchase or sale.

Your technique of keeping receipts can range from simple slips stored in a cigar box to an advanced cash register connected to a computer system.

The higher the volume of sales you process, the greater the frequency with which you should publish transactions to your ledger. For example, a retail store that makes hundreds of sales each day totalling thousands of dollars ought to update their status on a daily basis.

If possible, use accounting software to manage your finances. You should keep three separate sets of records for your company.

Cashbook, profit and loss forecast, and balance sheet are the three most important reports to keep.

Three Steps to Keeping Your Books

When broken down into three steps, the actual method of preserving your books is straightforward and simple to comprehend.

• Always make sure you have a receipt or some other form of verifiable documentation for every single payment made to and expense incurred by your company.
• Your records of both income and expenditure should be summarised at regular intervals (daily, weekly, or monthly).
• Create financial reports on your company with the help of your summary. These reports should provide you with precise information about your company, such as the amount of monthly profit your company is earning or the value of your company at a particular point in time.

The aforementioned ideas are applicable regardless of whether your bookkeeping is done manually on ledger sheets or through the use of accounting software.

Step One: Keeping Your Receipts

Every single purchase and sale that your company makes needs to be supported by some kind of record that details the amount, the date, and any other information that is pertinent to that purchase or sale.

You’ll make use of these to compile a summary of your financial dealings.

Your technique of keeping receipts can range from simple slips stored in a cigar box to an advanced cash register that is connected to a computer system. Both of these options are acceptable from a legal standpoint.

For reasons of efficiency, you should go with a system that is tailored to the requirements of your company. For instance, a tiny service business that only takes on a small number of jobs here and there might be able to get away with a very basic strategy.

On the other hand, the higher the volume of your company’s sales and expenditures, the more sophisticated the receipt filing system needs to be.

Step Two: Setting Up and Posting to Ledgers

A finished ledger is nothing more than a summary of the income, expenditures, and anything else that you’re keeping track of in the accounting process (entered from your receipts according to category and date). In the future, you will make use of these summaries to provide answers to particular financial queries regarding your company, such as whether or not you are earning a profit and, if so, how much that profit is.

Post receipts regularly. You should enter the monetary values that are written on your sales and purchase receipts into your ledger on a consistent schedule, such as once a day, once a week, or at the absolute least once a month. This can be done on a daily, weekly, or monthly basis. This activity is known as posting. The frequency with which you do this is determined by a number of factors, including the size of your company’s revenues and expenses, as well as how detailed you want your books to be.

Your posting schedule depends on your sales numbers. In general, the higher the volume of sales you process, the greater the frequency with which you should publish transactions to your ledger. For example, a retail store that makes hundreds of sales each day totalling thousands of dollars ought to update their status on a daily basis. Due to the high volume of sales, it is essential to stay on top of what is occuring each day and to avoid falling behind in the necessary documentation. To accomplish this goal, the bustling retailer should make use of a cash register that, at the touch of a button, computes the day’s total sales and uploads them to a computerised accounting system.

If you require help with your bookkeeping, you can give us a call on (03) 8568 3606 or email us on [email protected].

If, on the other hand, you run a business that sees fewer customers or fewer transactions overall each month, such as a small website design firm, dog-sitting service, or swimming pool maintenance company, you might be able to get away with posting only once per week or even once every month.

If possible, use accounting software. You have the option of purchasing accounting software that, when you enter your data, will automatically construct the ledgers for you (and then automatically generate the necessary financial reports from the same information). It is recommended that all new businesses, with the possible exception of the tiniest ones, utilise some kind of accounting software package to assist them in maintaining their accounts. Personal finance software such as Quicken is usually sufficient for the needs of a microbusiness.

Step Three: Creating Basic Financial Reports

The consolidation of multiple essential pieces of financial information about your company into a single document is one of the primary reasons why financial reports are so essential.

Consider it in this light: although your income ledger might indicate that your company brought in a significant amount of money over the course of the year, you won’t be able to determine whether or not you made a profit until you compare your entire income to your total business expenses.

Even if you compare the sums of your monthly income and expenditures, this will not tell you whether or not your clients who use credit are paying you at a rate that is sufficient to maintain appropriate cash flow through your company and allow you to pay your debts on time.

It is for this reason that you require financial reports, which will compile the information found in your ledgers and form it into a form that will illustrate your company in its entirety.

The cash flow analysis, the profit and loss forecast, and the balance sheet are the three most important reports that you need to generate on a consistent basis. (These periodical reports are something that may be generated by a variety of accounting software, including but not limited to QuickBooks and Quicken Home and Business.)

Keep proper financial records.

Your business’s accountant will give you advice regarding the specific requirements that your company has. However, as a general rule, you should keep three separate sets of records. These include:

Cashbook

The deposits and withdrawals are made to and from your bank account. If you maintain its accuracy and keep it up to date, you will be able to utilise it not just as a historical record but also as a tool for making predictions after a few months have passed.

Sales invoice file

You will be able to generate and save invoices with the help of an accounting package if you utilise one. If you do them manually using Word, make sure to preserve a record of your work somewhere. Keep the invoices in the order that they were received. In order to better manage your credit, you should move the accounts that haven’t been paid yet to the front of the file.

Because online accounting systems like FreeAgent will transfer scanned invoices to “The Cloud,” you won’t need to worry about losing your data even if you keep them on your own local storage device.

Purchase invoice file

Get in the habit of noting on invoices the dates you paid them and the method you employed (BACS, cheque, cash etc.). Put them in the appropriate chronological order. This will make things simpler for you, and it will reduce the amount of money you have to pay your accountants.

Get an invoice or receipt for everything you buy

The longer you have been in operation, the greater the likelihood that a VAT or tax enquiry may be opened against your company. As long as you have a competent accountant on your side and all of your relevant documentation close at hand, you shouldn’t have anything to worry about in most cases.

You should make it a habit to keep a piece of paper for every transaction, and if you buy something online, you should print out the invoice. It is far simpler to gather paper as you go along rather than to try to track it down after a number of years have passed.

Keep your accounts clean – separate business and personal expenses.

Even if you own 100 percent of the company, the money that the business makes is not considered your personal wealth when you run it as a limited company. You are not permitted to make personal purchases using company funds if you hold the position of director, unless the item in question is a valid business expense.

Even though you will be drawing money out of your firm in your capacity as a self-employed individual, you should nonetheless keep that money in a separate bank account. Maintain a clean image for your business and personal money by maintaining a wall of separation between the two.

Check bank statements

You should make it a habit to review your bank statement at least once per month. You will not only reduce the possibility of becoming a victim of fraud or having your bank make an error, but you will also have a clearer idea of where your money is going.

Establishing good credit management and regular spending as part of your company’s culture should begin on day one of your venture.

Put time aside to do your bookkeeping regularly.

It’s easy to fall into the trap of putting off your bookkeeping until the evening when you’re just getting started.

However, if you are sleepy, even the simplest of jobs will take you longer, and you will be more prone to making errors.

If you need to complete a task similar to this outside of working hours, when you could be earning money instead, you should think about getting up early one morning or performing the task on a Saturday morning.

Create a routine for yourself so that it becomes second nature.

It is possible that you will discover that the use of an appropriate accounting software package alleviates a significant portion of the discomfort.

Get help with your finances – hire a bookkeeper or accountant

If there’s one area of your life in which you shouldn’t skimp on hiring a professional, it should be the one dealing with your finances.

If you hire a good accountant, you will end up saving more money than you pay them.

If they cannot or are not sufficiently proactive, they should be fired, and a replacement should be found through personal recommendations.

Changing accountants is not overly difficult due to the existence of professional norms of behaviour.

If you are having trouble staying current with the paperwork associated with your business, you should seriously consider employing a bookkeeper to keep your records in order on a regular basis.

They will help you cut down on your accountancy costs, and there is also the possibility that they will assist you in bringing in additional revenue.

Prepare Financial Statements

In earlier accounting advice, we discussed the many types of financial statements that a company compiles during the course of its operations. The balance sheet, income statement, and cash flow statement are several documents that illustrate this concept.

You should generate each of these financial reports on a regular basis, such as once per month or once every three months because they will assist you in analysing the health of your firm from a variety of perspectives.

A snapshot of your company’s assets, liabilities, and equity at a certain point in time is displayed on the balance sheet.

The income statement, on the other hand, details not just the income and costs that occurred over a specific time period but also the “bottom line” of your company’s financial situation.

Additionally, the cash flow statement will show you how your cash balances have evolved over the course of a given time period.

If you were a publicly-traded company, your shareholders would expect you to submit financial statements on a quarterly or annual basis. These reports must detail your company’s revenue, expenses, and other key metrics.

Since this is probably not a requirement for your company, determining how frequently reports of this kind should be generated for your company is entirely up to you.

Look to the Future

Utilize the results of your monthly financial report to assist you in making projections on the future of your company’s finances.

Identifying future costs, such as forthcoming tax payments or legal bills, may be part of this process.

It could include more detailed plans for the company’s expansion, such as budgeting for more workers and higher rent, for example.

In this way, forecasting can assist you to make efficient use of the assets that you already own.

Additionally, it can assist you in confidently planning for other major milestones in the development of your company’s progression.

Make accurate projections by performing monthly analyses of your company’s financial data.

The analysis supported by data may ensure that prudent investment decisions are made.

Leverage Technology

Trying to keep accurate accounts in practice is a complicated and difficult process.

This process will become increasingly more stressful as the size of your organisation continues to increase.

It’s possible that a single transaction you make will result in multiple entries being made across all of your various accounts.

When there are hundreds of transactions of this kind, it can be quite difficult to try to keep a record of everything that has happened.

This is where the assistance of modern technologies can be of use.

Instead of recording every transaction that your company completes into paper ledgers as it was traditionally done, you may now make use of accounting systems that are more simpler to operate.

Make sure that you still save a duplicate of all of your receipts, either physically or digitally, even if you choose to manage your accounting needs with software. If you do decide to use software for your accounting purposes, follow the above sentence.

When you try to balance your books, if you see any inconsistencies, you may use this method to check everything again and correct it if necessary.

New Business Account Creation

There is nothing more frustrating than having to dig through a huge number of financial records in order to uncover a single nugget of information that is both unimportant and essential to your organisation. This may be a time-consuming and laborious process.

If you haven’t kept separate accounts for your personal and business finances, then all of your money will eventually end up in the same place, and it will be very difficult to keep track of it all.

By having a separate bank account for your business transactions, you can eliminate any possibility of confusion between your personal finances and the transactions related to your company. Because of this, you’ll be able to maintain a wall of separation between the money you make from your business and the money you make from your personal life.

You won’t have any trouble finding out where to seek for the appropriate financial information when the time comes for you to finish your books.

Set Aside Money in your Budget for Taxes

If you want to avoid having to pay a significant amount of tax all at once, it is smart to create a budget that accounts for taxes as you go along with your spending. When the tax collector comes to your home, you won’t be taken aback or caught off guard thanks to this preparation on your part.

If you already have a savings account or something comparable, putting some of your income into it may be a good option. This will allow you to simply pay off your tax payment and give you the piece of mind that comes with knowing that you have money saved. If you do not already have a savings account or anything like, putting some of your salary into one could be another smart financial move for you to do.

Always be sure to keep your records in an orderly fashion

If looking through one account where cash is pouring in for both your personal life and your business is already a pain for you, then cluttered records are going to offer you an even bigger headache when it comes to keeping your books in order.

When papers are maintained in good shape and are nicely organised, you are aware of exactly what is stored where, which enables you to save a large amount of time. When documents are not maintained in good form and are not nicely organised, you may lose track of what is held where.

In the event that you are unable to complete your taxes by the due date because you are too busy, you will be grateful that you made the effort to retain all of your paperwork in a clean and organised manner. Because of this, you will be able to save time because you will know exactly where to look for the information that you require.

However, you shouldn’t just organise your documents once and expect it to stay that way. Instead, you should make it a habit to regularly maintain the organisation you’ve established.

Keep tabs on your spending

If you use a credit card for your company, for example, you may ensure that all of your company’s spending are grouped together and can be easily accounted for. This makes it easier to keep track of business expenses, although this is not always the case.

Taking care of this issue in the most easy way possible and simplifying things a great lot by organising your invoices in accordance with the many different types of expenses you have is a terrific way to get things done.

The amount of miles per gallon is a good example of this concept.

If you have to drive a considerable distance for meetings, you should keep track of your mileage and make a note of how far you’ve travelled as well as the costs involved with that journey. If you have to drive a significant distance for meetings, you should also keep track of your mileage.

Ensure that daily records are kept

It is highly recommended that you maintain daily records because doing so is one of the most important pieces of guidance to adhere to. If you do not keep good daily records, monitoring the financial health of your firm will be a task that is significantly more difficult for you to complete.

You need to put a system in place and adhere to it if you want to be able to keep records that are correct on a daily basis and avoid making any mistakes when you are completing your tax returns.

Keep a Paper Trail Behind You

If you are handling your bookkeeping responsibilities manually, you really must ensure that you leave an audit trail behind for later review.

Your ability to swiftly and readily retrace your financial operations will significantly improve the efficiency of the records you retain for those activities. Because it is able to do this with relative ease, one of the reasons why it is a good idea to consider using software as an alternative is because of this capability.

Having an audit trail ensures that your invoices will be in the correct order and that you will be able to easily retrace your actions in the event that there is even a single minor mistake. If you do not have an audit trail, it is impossible to guarantee that your invoices will be in the correct order.

Maintain Constant Vigilance Regarding Your Accounts Receivable

Customers that pay their bills over their due date are never a positive sign, and this issue can have a detrimental influence on your company’s cash flow.

Make sure that you pay attention to the dates on which your receivables are due, and when they are past late, take immediate action rather than wasting time.

You should make an effort to devise a strategy that will enable you to collect the money that is owed to you as quickly as possible; nevertheless, keep in mind that the longer you wait to deal with it, the more it will disrupt the flow of income through your business.

Remember the Tax Deadlines

The impending deadline for filing taxes puts everyone under a significant amount of pressure.

By taking the simple step of generating a reminder for yourself, you can ensure that you will have plenty of time well in advance to fill out your tax forms accurately and without making any mistakes.

By maintaining accurate records, you may protect yourself from being pursued by HMRC in the event of any errors and ensure that the deadline will not be missed. Because of this, you won’t need to stress about whether or not you’ll make the deadline.

Utilise Software Right Away

It is much simpler to keep your financial records up to date if you use a digital app. This is due to the fact that a digital app allows you the capacity to keep track of your incoming transactions, outgoing spending, and everything in between in an organised manner. Even though it may sound like another burden that you need to get a handle on in addition to doing your books, this is not the case because certain apps include fundamental features that are easy to use that make the entire process efficient and painless. This is the case even though it may sound like another burden that you need to get a handle on in addition to doing your books.

Therefore, there is no reason for you to feel overloaded because using an app to save your books will make it substantially easier for you to do your books, which will provide you with enhanced peace of mind.

If you want your business to grow, it is imperative that you keep detailed accounting records at all times. You will also have an easier time acquiring financial investments and loans. This is because of your improved credit score.

Instilling confidence in one’s business partners is another benefit of utilising a reliable accounting system. If there is a problem with your company, you will become aware of it far before it reaches the point where it can no longer be controlled.

Conclusion

If you are having trouble staying current with your business records, you should consider employing a bookkeeper to keep your records in order.

If you are a publicly-traded company, you may have to submit financial reports on a monthly basis.

These reports must detail your company’s revenue, expenses, and other key metrics. Utilize the results of these reports to assist you in making projections on the future of your business.

If you haven’t kept separate accounts for your personal and business finances, then all of your money will eventually end up in the same place.

You can avoid potential confusion between your personal funds and your business dealings by opening a different bank account.

Always be sure to keep your records in an orderly fashion.

If you use a credit card for your company, for instance, you can ensure that all of your expenditures are grouped together and can be easily accounted for.

Maintaining an audit trail ensures that your invoices will be in proper order and that you can easily retrace your actions.

A digital app gives you the ability to keep track of your incoming transactions, outgoing expenses, and everything in between in an organised fashion.

This protects you from having to worry about missing the tax deadline. It is essential to maintain accurate accounting records if you want your company to see expansion.