After the first flush of excitement over starting a new business, most people get a reality check in the form of keeping the books and setting up their accounting systems.
If you find accounting for your small business daunting, the good news is there are ways to simplify and organise things, so it doesn’t take up all your time.
Have a Dedicated Business Bank Account
While it might sound obvious to business veterans, when you’re starting out it’s tempting to use your personal bank account for business expenses. Reasons to think about a separate bank account include:
- You won’t have to weed out the personal expenses before you can start filling in your business records. Barclays estimate freelancers and sole traders spend about 15 days every year separating their personal finances from their business ones.
- You’ll get easier access to business finance. If you want to borrow money to invest in your business, you’ll benefit from having some business banking history.
- Business bank accounts are easy to open. If you don’t want to borrow money or run an overdraft, most banks will be happy to help you set up an account. Shop around a bit to figure out which would best suit you, such as free banking periods, maybe a business advisor, easy parking if you think you’ll want to visit the branch regularly.
Having a business bank account isn’t a legal requirement for a sole trader, but it certainly makes organising your finances and accounts a lot easier.
Use a Digital Accounting System
There are lots to choose from, and they really do make every day small business accounting very much easier, even for complete beginners. A quick internet search will throw back lots of information, including sites that give a quick overview of a few.
Choose one that lets you fill in the sections you need, rather than insisting on lots of information you don’t have. An example might be a system that demands payroll or VAT information when you don’t need either of those things.
The beauty of these systems is that they give you lots of help, and that accountants for freelancers or sole traders will often work with them too. This means you can take care of your day to day bookkeeping yourself but still hire an accountant for your end of year self-assessment tax return.
If you’re brand new to digital accounting, names to look out for include FreeAgent, QuickBooks, FreshBooks and Xero. There are lots more to choose from.
Automate as Much as Possible
Bookkeeping and accounting can take up lots of your time, so automating a few tasks you often repeat is a good idea. What can you automate? These are a couple of accounting tasks that can be automated. There are others, but you may not need them as a sole trader or freelancer.
- Bank Transactions – sync your accounting software with your bank so new transactions are automatically recorded.
- Invoicing – Use software that captures contact details and have a template to use so you’re not forced to generate the information from scratch every time you raise an invoice.
Understand Your Obligations for Tax
HMRC has a wealth of information for small businesses, including record keeping and accounting. Exactly what taxes you’re liable for will depend on how you structure the business, but things are relatively straightforward for freelancers or sole traders.
You’ll need to file a self-assessment tax return each year, and there are deadlines with penalties if you’re late. It’s a good idea to file early if you can, not least because they do tend to get busy as the deadline approaches and if you’re doing it yourself you might need to phone for help.
Once you understand what your tax and national insurance bill is likely to be, and how it’s worked out, you can make sure your bookkeeping contains all the information you need.
Use Professional Services
Don’t shy away from the professionals. In all types of businesses there are ways to make money work harder and perform better. There are systems and processes that can streamline your operation, and start up accountants and tax advisors have the experience and knowledge to offer expert guidance.
Unless you really know what you’re doing when starting a small business, getting start up advice can be invaluable in making it a success. And if you’ve been trading for a while but you’re feeling overwhelmed, seeking accounting help can help you get back some balance and see a clearer way forward financially.
We often make accounting much harder than it needs to be, and while it’s a vital part of any business it’s also easier than you might think once you understand what’s needed, and why.
Easy Accounting for New Business Owners is a feature post