Many small businesses are started on a shoe string, and there’s nothing wrong with that providing you’re happy to start small and grow slowly but steadily.
Any business venture is exciting, whether you’re opening a new factory or contemplating an enterprise run from the kitchen table. One thing all businesses have in common, regardless of size, is the need for bookkeeping. And this is where many business owners come unravelled.
Whether it’s lack of knowledge about what to keep or how to record it, bookkeeping is often viewed as one of the most challenging business tasks.
Here are five ways to make it simpler and cheaper.
#1 – Open a Separate Bank Account
It’s tempting to bundle business and personal finances together, but this leads to future problems. For one thing, at the end of the tax year you pay for the convenience of having all your finances in one place by having to sift through months of supermarket bills to weed out the times you shopped for business hospitality items.
Business banking for startups isn’t expensive, and many banks will offer a period of grace before charges kick in. Building up a relationship with the bank may also make it easier should you want to borrow money in the future.
Another huge advantage of a dedicated bank account is that you can easily compare and reconcile transactions recorded in your accounts.
#2 – Organise and Maintain Your Accounting System
Don’t make things more complicated than they need be. If your business is a busy retail outlet you’ll need a more comprehensive system than if you’re selling a single service or a small number of handmade items.
At the very least you need to:
- Keep receipts for everything, even very small expenses such as bus fares and postal costs.
- Keep invoices or receipts for stock or capital equipment used for business.
- Keep copies of invoices you issue.
- Keep records of money spent as part of the cost of doing business, such as subscriptions, web hosting, or your bookkeeping costs.
- Log sums withdrawn from your business bank for personal use.
- Keep copies of bank statements.
How you keep these records is up to you. You could start an Excel spreadsheet, open an account with one of the many online accounting companies (such as FreeAgent or Freshbooks), or simply keep an accounting ledger which you can buy on the High Street. Having the financial record is more important than how you do it.
#3 – Save Money with a Bookkeeper
Accounting and bookkeeping are different professions under the same umbrella. A bookkeeper will help you keep clean, organised records on a daily basis. An accountant will put together your tax return, delving into your numbers to find ways to make tax savings and offering higher end business advice where it’s needed.
Both are professional services, but a bookkeeper can save you money you’d otherwise spend with an accountant if the accountant has to first organise the books to extract the needed information.
#4 – Go Digital
The paperless office is a concept we’re still waiting to appear in everyday life, but there are definitely ways to minimise business paper trails. Online accounting packages that link with bank accounts, do automatic transaction updates and allow you to also send out and track invoices, can save money for those familiar with bookkeeping. Some will also prepare your accounts for input into your tax return, although you need some knowledge about what you’re doing to get the most from it. An accountant is still the best route to be sure you’re claiming all the deductions you’re entitled to.
#5 – Budget for Taxes
Even though we’re know they’re payable, taxes can still come as a nasty surprise. The recommended amount to budget for is 25% of income, so if you make it a rule to regularly set aside this amount from all earned income, you’ll have savings to hand to cover bills. Remember personal taxes include National Insurance as well as income tax. The upside is that if your tax bill is smaller than anticipated, you have a nice pot of savings that’s built up over the year.
In business, being frugal doesn’t mean cutting corners. Happily, there are ways to minimise expense while still keeping important records in order.