Maintaining your financial records, and doing it well, provides a strong foundation for business success. Regardless of your business type, an understanding of bookkeeping can keep things running smoothly both now and in the future.
And though managing accounts yourself may seem daunting, knowing where to start can make the process easier. Here, we’ll present a beginner’s guide to bookkeeping to get you started.
In terms of business bookkeeping, this part of accounting concerns itself with the collection and organisation of financial documents. It’s anything that involves gathering, organising and filing data that relates to your company’s finances, such as:
Staying on top of your accounts ensures that you have the numbers and data you need to make predictions about your business’ future, and diagnose your financial health should any problems occur.
There are several reasons why keeping abreast of your accounts is important. When everything is in order, you can make sense of your overall income and see any areas where you’re overspending. This means you can focus your business activities on your most profitable products and services, or cut back on spending to save a little extra.
It’s also beneficial if you’re looking to secure investment, and can certainly help with others’ perception of your business when you know where all your money is going. Additionally, keeping your finances in order allows you to illustrate your business’ current financial state, and its potential for future success.
It’s also essential for filing taxes. Knowing how much you made and how much you spent on supplies and expenses throughout the year lets you fill out an accurate tax return, so you can claim the deductions and rebates you’re entitled to.
As well as those listed above, it’s a good idea to put some time aside for the following:
Unreconciled transactions
If you’ve any unreconciled transactions outstanding, you can’t complete your books until all transactions have been correctly categorised. It’s important to approach things chronologically.
Loan payments
If you have any loan payments on your books, then be sure you’ve accounted for the principle and interest portions of the payments correctly. If you’ve categorised the whole payment to a single expense, then take another look, as they might be incorrect.
The “shoebox”
If you’ve previously stashed away your receipts in a box somewhere, then consider implementing the correct accounting principles to make expenses easier to manage. Documenting your transactions electronically with a smartphone app is the best way to stay on top of tax-deductible expenses, as opposed to scrabbling through a pile of receipts that are easy to lose and hard to keep track of.
Inventory count
Analysing your inventory count may turn up inaccurate values due to miscounts or even instances of theft. If you have a physical product then it’s important to stay current on inventory. Conducting a regular inventory check is an important step in efficient accounts management.
Before you begin keeping track of your accounts, it’s a good idea to understand what they entail.
To keep a handle on the books, you need to track these items and ensure that related transactions are recorded correctly and in the right place. There’s a formula you can use to make sure things are always balanced. This formula is called the accounting equation:
Assets = Liabilities + Equity
This means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims based on what you owe vendors and lenders. Owners of the business have claims against the remaining assets (equity).
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Create a system
Set up an accounting system from the start using your preferred method, whether it’s an advanced software package or a manual system. Either way, a computer spreadsheet or straightforward accounting system is a good way to go.
Go on a free HMRC workshop
HMRC offers free workshops, which come highly recommended, on a range of topics, such as:
They also offer a free payroll solution which is helpful for meeting all your employer-filing responsibilities.
Find out more about HMRC business and accounting workshops
Budget for tax
Although you may have made a profit, the money isn’t yours outright – you’ll have to give some of it back to the taxman. Make sure you budget for this, so you don’t get any big surprises at the end of the year. Open a deposit or business savings account and put money aside for your tax. Saving 25-30% of your income will ensure you can cover your tax bill.
Claim for all business expenses
Keep all receipts for your business purchases – even the smallest costs, such as stamps, stationery, bus and train tickets. The general rule is you can claim for any cost incurred ‘wholly and exclusively for business’.
Be sure to record your business trips and claim for these, even if it’s for something as small as a trip to the post office in your car. In fact, you can still claim even if you cycled there; the allowed rate for cycling is 20p per mile.
If you use your home as an office, you can claim for a proportion of your domestic bills, including lighting, heating, internet and telephone charges, and even a percentage of your rent or a proportion of your mortgage interest.
Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3395.
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