10 Foolproof bookkeeping tips for small businesses
Every business needs to maintain an accurate and up-to-date set of accounts to run smoothly. However, with the ever-changing nature of UK tax regulations, this can be a challenge — especially for small businesses with fewer resources to spare. As a small business owner, it’s vital to stay on top of your bookkeeping at all times. In this piece, we’re setting out 10 bookkeeping tips for small businesses to help you gain control of your accounts and make intelligent financial decisions.
Practical bookkeeping tips for small businesses
1. Know your operational costs
Do you know exactly how much money you spend on operational costs every month? From big expenses like rent and utilities to smaller ones like office supplies, it’s vital to have a complete picture of your expenses so that you know what to budget for and how to price your products. One of our most recommended bookkeeping tips for small business owners is to have a structured system for categorising and recording your expenses. An accounting software can help you out here.
2. Pay attention to accounts receivable
In order to maintain a healthy cash flow, it’s vital to pay attention to when your accounts receivable are due. Always invoice your customers promptly and follow up on outstanding payments so that they’re cleared as soon as possible. Strategies to effect this include sharing clear payment instructions with each invoice, offering flexible payment options, and having a structured system of follow-ups and penalties for late payments.
3. Prepare yourself for major expenses
There are certain big expenses that your business will have to incur from time to time, such as software renewals, equipment upgrades, or quarterly tax payments. Rather than scramble to cover these at the last minute, why not set aside part of your business income in a separate account to cover these anticipated expenses? This’ll help you avoid financial strain when paying for them and help with better cash flow management.
4. Separate business and personal finances
It’s all too easy to blur the line between business and personal expenses when you run your own business. The tax regulations for each, however, are very different — and you risk penalties from HMRC if you mix up the two. One of our key small business accounting tips is to have a separate business bank account with its own credit card as soon as you set up your business. This will help you keep your accounts separate from the get-go.
5. Stay on top of tax deadlines
HMRC has strict deadlines for submitting your Self Assessment returns, corporation tax, and VAT. To avoid the stress of last-minute filing, we recommend working with a small business accountant who can help you plan your taxes in advance. This enables you to set aside money for timely payments without unexpected disruptions to cash flow or the financial burden of penalties for late filing. It’s also a good idea to set up calendar reminders a few weeks before the tax deadline.
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6. Automate your workflow
Bookkeeping activities like expense tracking, invoice generation and sending, and bank statement reconciliation lend themselves easily to automation. This saves you time, minimises the scope for errors, and improves business efficiency by keeping your accounts in shipshape condition. As part of our accounting advice for startups, we recommend investing in a cloud-based accounting software that syncs with your business bank account for automatic reconciliation.
7. Monitor your cash flow
Having a steady and predictable cash flow is one of the most critical bookkeeping tips for small businesses. If you’re a small business owner, setting up a cash flow forecast can help you predict your working capital at any given point in time and make better financial decisions about what to invest in.
8. Choose between accrual or cash accounting
In accrual accounting, you record income and expenses as and when they occur. In cash accounting, you record income and expenses as and when the money is actually received and paid. Both methods are suitable for different kinds of businesses. Broadly, accrual accounting might make more sense if your business is service-based, while cash accounting is more appropriate for product-based companies. Each method has its own implications on how you file your taxes, so remember to consult with an accountant on the best accounting method for you.
9. Prepare a quarterly budget
Having a budget in place is a vital part of bookkeeping for small business owners. It helps you gain control over your expenses, set suitable financial targets, and identify inefficiencies to work on. We recommend setting a budget for every quarter and then tracking your actual income and expenses against the forecasts to see how far you adhered to it. Reviewing the sales on your financial reports from the past few months can help you budget an appropriate amount. And, of course, remember to review and update your forecasts based on industry fluctuations or changes in business activities.
10. Know when to outsource your bookkeeping
The more your business grows, the more complex bookkeeping becomes. At some point, doing it all yourself — even with the help of accounting software — may not be the best use of your time. At that point, it makes more sense to outsource to a qualified accountant who can handle payroll, tax filing, and bookkeeping on your behalf. This not only frees up your time for core business activities but also ensures that you get things done accurately, on time, and at a reasonable cost.
Final words
As a small business owner, maintaining up-to-date books of accounts is key to making the right financial decisions and staying compliant with tax laws. The small business accounting tips we’ve outlined here will help make the process simpler — and for more detailed guidance, we recommend working with a professional accountant.
At Affinity Associates, our bookkeepers specialise in helping small business owners gain control of their finances, no matter what industry they’re in.
Book a call with us today to learn how we can do the same for you.
