10 bookkeeping tips for small businesses


There are bookkeeping tips for small businesses that, if known, could make the life a business owner so much easier. But, first things first, we should define what bookkeeping is and what processes it involves.

In essence, bookkeeping is that part of accounting that deals with daily recording of financial information, such as:

  • Recording financial transactions
  • Posting debits and credits
  • Producing invoices
  • Maintaining and balancing current accounts, historical accounts and general ledgers
  • Reconciling bank transactions

Beside these basic tasks, bookkeeping can also generate a mini-year-end account in the end of each month, so that decision makers could plan for taxes or for expenditure and investments. Of course, accurate and timely bookkeeping is essential so that you can have a better idea of the financial position of your business, which in turn helps you make informed decisions as well as comply with the filing of your taxes.

Whether you have just launched your business or have been running it for some time, at first you may be tempted to do the bookkeeping yourself or delegate it to the administrative assistant. However, bookkeeping may prove a daunting task, especially that more advance but necessary accounting such as cashflow forecast or management accounts reporting depend on accurate bookkeeping.

Here are 10 bookkeeping tips for small businesses that you may find very useful.

1.Keep business and personal bank accounts separate

Having separate bank accounts for personal transactions and for business transactions will make your business bookkeeping as pain-free as it can possibly get.

It also makes your business appear more professional. There is no need to plough through personal bank account statements to find the business-related items and expenses when you need to gather information for tax filing purposes. HMRC can ask to see your personal bank statements if business income and expenses appear in the same bank account (do you really want them to see how much you spend at Nando’s each month?).

Also, having a separate bank account is a legal requirement for limited companies, because a limited company is deemed a separate legal entity, so you can’t simply use its money for personal reasons even if you own the company.

2.Be on top of your invoices

Having all the information needed on your invoices should be your main priority when completing your regular bookkeeping. Since you are in business to make money, your customers need to know how and when to pay you. It is absolutely necessary to have a system in place to keep track of payments coming in and, more importantly, overdue payments.

You will also need to keep copies of your invoices or other supporting documentation for all forms of income generated through your business or self-employed work. There are penalties incurred for not keeping accurate records.

The UK Government states that non-incorporated businesses (sole traders and partnerships) should retain their tax records for at least five years and ten months for the tax year to which they relate. For example, for the 2020/21 self-assessment tax return, with a final submission deadline of 31st January 2022, you must retain these records until 31st January 2027. Limited companies must keep records relating to the information in their tax returns until at least six years after the end of their accounting period. Each limited company establishes its own accounting period (unlike sole traders who have a tax year set between 6 APR of the current calendar year to 5 APR of the next calendar year). For example, records relating to the chargeable accounting period of a limited company from 1 APR 2020 to 31 MAR 2021 must be kept until 31 MAR 2027.

3. Have a smart system of payments

Having a smart system of payments does wonder for your cashflow. Here are some suggestions for controlling this problem and helping your cash flow:

I. Have an efficient control process: follow a clearly defined internal process for chasing and managing late payments should the situation arise. Chasing customers who have not paid their invoices can be time consuming, but the good thing is with Quickbooks accounting software you can now set automatic reminders to do a lot of the heavy lifting for you.

II. Set clear payment terms with each of your clients at the start of a work relationship. If this is clearly agreed from the start, you will avoid any misunderstandings further down the line.

III. Include penalties for late payments. This may lose you some clients, but it will have the advantage of securing a timely payment from the rest of your customer base.

4. Keep your receipts

One of the biggest problems businesses experience is misplacing or losing expense receipts. Without a record of your expenses, it is not as easy to prove your expenditure related to the business. Subsequently, you are unable to claim tax relief on these expenses when you submit your tax return. And very importantly, as we mentioned earlier in this blog, there are penalties incurred for not keeping accurate records.

Collecting and keeping expense receipts takes discipline, but the best way to stay on top of your receipts is to record them straight away. Yes, this is exactly what bookkeeping does. Organise your receipts by date and write any notes on the receipt if the transaction is not clear. If you have access to a scanner, then it’s a good idea to keep a digital record; you could even take photos and save them in folders on your computer. Please note that VAT registered businesses are now required to keep their records digitally. Please also note that as we speak HMRC is rolling out MTD (Making Tax Digital) sole traders and then they will start rolling this out for limited companies, too.

Keep all expenses and receipts that relate to your business, as these may be deductible from income when calculating your profits in your annual tax return. You do not need to submit these receipts in your tax return, but it is useful to have expense records to support all transactions should your accountants, HMRC or others need more information about your finances.

5. Use accounting software

Using accounting software makes it easier to keep all your business’s financial records in one place. It will save you time and give you peace of mind. This is why there has been an increasing pressure on small businesses to digitise their accounting and tax reporting. Digital compliance is becoming a necessity given the emergence of Making Tax Digital (MTD).

Please note that VAT registered businesses are now required to use HMRC approved accounting software to submit their VAT returns. Please also note that as we speak HMRC is rolling out MTD (Making Tax Digital) sole traders which requires them to keep records digitally and submit their self-assessment tax return via HMRC approved accounting software. MTD will soon start rolling this out for limited companies, too.

Your first step to using accounting software, which would save hours of administrative chores, could be to record your expense paperwork instantly using the Dext app or a similar expense scanning app service. This type of software allows you to send photos of your expense receipts from your smartphone directly to your accountant. You can also automate regular supplier invoices and bank statements as well as electronic receipts, ready for bulk processing.

6. Know your numbers

This may sound like a tough one, but knowing your numbers is key to the success of your business.

You need to know how much you are selling, how profitable you are, how much spare cash is in the bank and how much you owe. Without these key measures, you cannot make decisions about the future of your business.

By doing regular bookkeeping, you will have a clearer picture of your numbers. Using accounting software will enable you to pull off reports at a touch of a button to show your business turnover or profitability, but even if you are using spreadsheets, you can still gain a good understanding of the financials in your business.

7. Save for tax

It’s a no brainer to think about putting money aside each month for your tax bill. Doing regular bookkeeping and knowing your numbers will help you work out your profit and, in turn, how much tax you must pay.

This will also ensure that you have sufficient cash to pay tax when it becomes due. Unpaid tax incurs hefty penalties and interest. Make a note of the tax deadlines, keep track of your likely profit for the year and put aside some money each month to account for estimated tax liabilities. Work with your accountant to schedule realistic tax payments and pay money on account (i.e. advanced payments to HMRC) so you can avoid sudden and unpleasant tax demands.

8. Set reminders for important deadlines

As a business owner you spend most of your time dealing with the challenges of your business. You do not have the time or the patience to worry about HMRC deadlines. With so much on your plate, it is easy to lose track of when you should be paying VAT, payroll, regular business invoices and when to pay taxes and submit tax returns in time.

To avoid missing deadlines that could leave you with a fine or disgruntled partner, set reminders for yourself. You can do this with your email calendar online, or even your smartphone. Even writing notes down for a few days before the deadlines can help keep you on track if you regularly check your physical calendar.

Even better, you could leave this with your accountant, whose one of the main duties is to keep on top of these important dates and remind you of documents you need to send.

9. Track your cash payments

Tracking your cash payments is very important for your financial accounting, as these numbers are part of the financial reports required by HMRC for compliance purposes and it is also very important for accurate management accounts reporting that help decision makers with your business plan for the future.

Any cash received by the business needs to go into the business bank account before spending it – even on business products. It may be tempting to take the cash immediately to purchase supplies, but this can easily mess up your bookkeeping system.

When recording cash payments, remember to make a note of which customer paid, so you do not chase them up again later. If you are unsure how to manage the details of a cash payment on your accounting software, get in touch with a bookkeeper who can help you set it up and use it correctly.

10. Hire a bookkeeper

If you want to keep your overheads low and avoid paying accounting fees, it is possible to look after your own bookkeeping. However, there are risks to this. The consequences of making mistakes with your own bookkeeping can be disastrous, particularly if this triggers an unexpected HMRC investigation.

Professional bookkeeping can help save time by taking the pain of maintaining your own records away, allowing you to focus on building your business and achieving the right work/life balance.

LAS Accounting Ltd can look after your bookkeeping on your behalf, saving you time and money to focus on doing what you do best – running and growing your business. We can also help you understand your business finances, monitor your cash balances, plan for future tax liabilities and pinpoint trends to help support important business decisions.

Now might be the ideal time to engage the services of an accountant to do all the work for you and provide you with all the bookkeeping and accounting advice you need.

Don’t hesitate to get in touch for any further enquiries at: info@las-accounting.co.uk

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