Finance

Five crucial bookkeeping tips for a small business owner

The one thing that small business owners hate doing is bookkeeping and accounting. However, the one thing you need to get right to ensure your business succeeds… is bookkeeping and accounting.

The problem is, unless you’re a whizz at figures, naturally into detail, or numerically hyper-organised, accountancy is a feature of running a business that can trip you up.

So, what should you watch out for to ensure your business doesn’t suffer because of your lack of talent – a.k.a interest – in this area? Take note of these top 5 tips.

1: Don’t let yourself slip into bad habits

It’s easy to put off what you don’t feel inclined to do but, with bookkeeping, a stitch in time really can save nine. So be disciplined. Allocate time in your diary to doing your books every week and block it off as a slot that can’t be reassigned. Promise yourself a treat each time it’s completed; ask your spouse to nag you until it’s done; don’t pay yourself until your cashflow gives you the nod.

Basically, do whatever it takes to make sure this weekly vigil happens. Because if you don’t, it quickly becomes a massive task that can eat up more than just a weekend… Not to mention that HMRC could end up breathing down your neck too.

2: Accept that the devil’s in the detail

Accuracy matters. You will no doubt have heard urban rumours about bookkeepers staying up all night to track down a missing ten pence. That sounds absurd to many but getting those details right is what ensures mistakes haven’t been made further up the line.

You may still ask why that matters anyway. The answer is simple. The figures and statistics you’re managing are the critical business information you need to make decisions. Every entry into your accounting software has to be made in the right place. Otherwise the reports it spits out at the end of each month, quarter, or year will be wrong.

However, if that isn’t motivation enough, consider this. Every time you make a mistake, your accountant has to fix that at a later date. And that’s going to increase their bill. Plus, if you’re submitting VAT returns regularly according to the Making-Tax-Digital rules, you don’t want the VAT man to get the wrong idea!

3: Keep your regular transactions on the straight and narrow

Ensure you enter regular payments and receipts the same way every time. Just get into the habit of using the same labels, cost categories, and classifications each session. Nothing stands out more as a poorly run business than disorganised entries. If you were to suffer the ignominy of an inspection, you’d instantly lose credibility as soon as the inspectors spot these errors. So be consistent.

And don’t forget, mistakes do simply add to your accountancy bill unnecessarily. Plus, you run the risk of overpaying tax; nobody wants to pay more tax than they should.

4: Stick with KISS – keep it simple, stupid

Accountancy systems are ferociously powerful these days. It’s highly likely that there are sections of your software you don’t need to use. If you’re unsure, of course check with your accountant and get advice. But don’t go filling in tabs and entries unnecessarily. Keep things as simple as you possibly can, and it will be easier each week to go in to do the updates.

5: Take advice on allowable expenses in advance

You’ll probably already know that allowable expenses are tax-deductible. Thus, what you spend on them can be deducted from your revenue before your tax is calculated.

That all sounds good and well, however, it can also be a bit tempting to sneak some extras through. Don’t. Speak to your accountant and get a good feel for what is and what isn’t allowable for your type of business. Many small business owners have expenses that are a mix of business and private. You need to be aware that unless an expense has been incurred wholly and exclusively for the purpose of business, it isn’t an allowable expense.

There are some exceptions, for example heating, electricity, council tax and internet usage. Those things you can claim a percentage back, and your accountant will be able to advise you on what that percentage should be. But other than those exceptions… just don’t be tempted. You could find yourself at the wrong end of a tax avoidance claim by HMRC.

One thing you should always bear in mind when you’re doing your bookkeeping and accounts, though, is it’s worth having a good accountant waiting in the wings. Once you’ve got yourself into the habit of working on your books on a regular basis, and once you’ve got your head round the detail whilst keeping it simple, you’re still bound to have questions from time to time.

Don’t be afraid to pick up the phone and speak to your accountant. They’re as keen as you are for your business to succeed. However, they’re also very aware of how easy it is to trip up. Make the most of their support, and you’ll find the task of working the figures gets easier. And who knows, you could end up saving yourself time and reduce your accountant’s bill into the bargain.

Originally posted 2022-05-31 11:19:20.

Roger Eddowes
The Business Bulletin

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Roger Eddowes

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts & Tax with Helen Beaumont in 2014. Roger loves ‘getting his hands dirty’, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Using an extensive network of business contacts to leverage the best guidance and practical solutions, he has been called a Business Godparent due to his caring, hands-on approach.

Five crucial bookkeeping tips for a small business owner

by Roger Eddowes Time to read: 3 min