Bookkeeping Advice for Small Business Owners - VW Taxation Ltd

Bookkeeping Advice for Small Business Owners

While there’s a lot of hustle and excitement, even pride, that surrounds running a small business, one thing that often makes entrepreneurs and owners groan a little is the accounting.

Keeping the books, sorting invoices and calculating that tax return is not the most glamorous part of being a business owner.

The challenge of bookkeeping for small business owners can vary considerably. For some it’s a simple process, for others it’s more complicated. A lot depends on the type of industry you are in.

If you’re in construction, for example, you may have a whole host of overheads and different invoices to note down and keep track of. You might have several different jobs a week that need to be managed.

What is true for every business owner, however, is that bookkeeping is extremely important. Getting into good habits can save you a lot of stress further down the line when you come to do your accounts and file that all-important tax return.

How to keep books for a small business

You will need somewhere to record your business activities such as invoice amounts, who has paid and when they paid, quotes for jobs and receipts for equipment or materials that you needed.

Keeping accurate records means that you have a clear understanding of how your business is performing, It should be relatively easy to do your tax return when the time comes and you have a record of all your work should HMRC have any queries.

Opening a small business bank account, separate from your personal account, makes sense because it means your business transactions can easily be identified. This is not a legal requirement, however, and many people who work self-employed use their personal bank account.

In our opinion, you should open a normal checking account and perhaps later add a savings account. You can use the latter to put money aside for your tax return or saving funds to help with growing your business.

Next, you need somewhere to record your transactions. Bookkeeping is called bookkeeping because all transactions used to be written down in a ledger. Today, many people use an Excel spreadsheet to keep track of incomings and outgoings, though this is also beginning to change and people are starting to use cloud-based software such as Quickbooks. You will certainly need to keep hold of receipts and invoices for your businesses and organising these can sometimes be a nightmare.

If you employ people in your business, then you will need to work out a process for PAYE and National Insurance contributions, recording how much they are paid and when. Whether you need to employ the services of an accountant will often depend on how complex your business is and how much of it you want to do yourself.

Examples of bookkeeping for a small business

While it can seem quite daunting, bookkeeping is relatively simple as long as you have the right tools. You don’t need any training and you certainly don’t need any academic qualifications for simple work setups.

In the old days, before many of us ever thought about running a business, owners would keep a physical book or ledger for their financial records, noting down when an invoice was given, when it was paid, what expenses were incurred and the like.

A simple way to keep your books is to record everything on a spreadsheet on your computer. Several merchant services enable you to create invoices and there are also templates available online which you can use.

More and more people are changing to digital accounting applications nowadays. These provide a wide range of tools in return for a small subscription each month. These tools can include being able to invoice customers, track payments, convert paper receipts to digital ones and monitor your business activity. Many even produce regular reports for you and can help run a simple payroll system.

How to do accounting for small business

It’s important to focus on your accounting needs and create a plan for what you need to achieve. If you’re a builder, for example, you may be dealing with one customer at a time which means your invoicing will be fairly simple, including the materials you buy, time worked on a particular job and the final bill.

One of the big mistakes that small business owners tend to make is not recording their expenses. For sole traders, this is relatively easy as long as a little care is taken. If you’re employing one or more people, however, it can start to get complicated.

It’s essential to keep all receipts and evidence in one place and have a strategy for documenting it. If you’re paying for advertising or asking someone to develop a website for you, for example, this is a substantial business expense and will have an impact on your tax liability.

How much electricity does a small business use?

If you run an office, your electricity bill is going to be larger than if you, say, work as a builder and are at the client’s property rather than your own. The average small business going through 15,000 kWh of electricity will have a bill of just under £2,000 each year. Much will depend on the number of people who use the property and what for.

If you work from home as a sole trader, you will need to assess the amount of electricity you use as part of your business activity compared to private use. You can’t just claim for it all.

How much do small business accountants cost?

Using a professional small business accountant has several advantages, not least giving you peace of mind and releasing you from the pressure of keeping your books. They can help put together your tax return and even save money on occasion. The cost of accountancy services have come down in recent years and are more affordable than ever.

Accountants tend to charge by the job rather than by the hour so will have set fees for certain activities such as doing your accounts and submitting your tax assessment.

How to keep financial records for a small business

It’s important to be diligent and have a plan for keeping your financial records in order. Whether you’re old school and prefer to write things down or you want to take advantage of the latest accounting app technology, your bookkeeping is essential in helping understand how your business is performing as well as supporting the completion of your tax return.

If you are a small business in Portsmouth or the surrounding area and you need help with your bookkeeping, contact the team at VW Taxation today.

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Picture of Gary Ellis | Director | VW Taxation
Gary Ellis | Director | VW Taxation

VW Taxation are self employment tax specialists based in Portsmouth. We specialise in tax accounting for contractors, limited companies and the self-employed.

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