If you have decided to look after your bookkeeping yourself, it is essential that you prepare it to a high standard for the following reasons:
- Ensures you are using accurate information when you make management decisions.
- Decreases your accountancy fee costs.
- Decreases your risk of fines from HMRC, as they can fine a business up to £3,000 for bad record keeping.
The following are some top bookkeeping tips that I give to clients:
- Use a business bank account, only use it for business transactions, if you need money for yourself, transfer it from the business account in the appropriate form of drawings/salary/dividends/reimbursed expenses to your personal account, so that you don’t have to wade through personal expenditure receipts when preparing your books.
- Reconcile your business bank account on a regular basis, to ensure that all business expenditure and income is captured accurately. One of the most common ways that businesses can save tax, is by including all their business expenditure in their accounts, so often items are missed, whether it is mileage, professional subscriptions, stationary paid for personally etc. Several years of these items soon become significant values.
- Use an appropriate system depending on the size and complexity of your business, a multi-million pound business needs something more sophisticated than manual ledgers, likewise a small sole trader will not require an all-singing all-dancing expensive software system.
- If you use a software based accounting system get some training, whether it is an official course or a one-to-one with your accountant to show you the basic transactions.
- Keep up to date with your bookkeeping, commit to preparing them weekly or monthly so that you have up to date information, this is essential for cash flow forecasting, chasing debtors and knowing which suppliers need paying.
- Once the bookkeeping starts taking up too much of your time you need help, it is time to hire a part-time bookkeeper or outsource it to a bookkeeping service.
Here are some basics that should be essential elements of your bookkeeping:
- Sales ledger – this records all your sales invoices, ideally including invoice date, invoice number, customer name, brief description of sale, VAT amount and rate if relevant, invoice amount, date paid, method of payment. You may also wish to categorise different types of sales, e.g. labour and material.
- Purchase (supplier/bought) ledger – this records all your purchase invoices (receipts), ideally including invoice date, invoice number, supplier name, VAT amount if relevant, invoice amount, date paid, method of payment. It is also essential to categorise different cost categories, e.g. Cost of sale, Employee Costs, Fixed Assets, Rent, Stationary, Marketing, Travel, Entertainment etc.
- Bank reconciliation, this ensures that all bank transactions are matched against your bookkeeping records.
- Business credit card reconciliations.
- Full PAYE records, I recommend using a basic software system for this, as it is essential to ensure full compliance.
- Keep full VAT calculation details along with copies of VAT returns submitted.
- Keep full CIS calculation details along with copies of CIS returns submitted.
This is just a brief introduction to bookkeeping; if you would like to review your current bookkeeping system do not hesitate to contact us. Let me know if you have any top tips for ensuring that you keep on top of your record keeping requirements.