Beginner's Guide to Bookkeeping for Small Business

Jordan Macey

April 20, 2021

small business bookkeeping guide

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Small Business Accounting

Introduction

Starting a new business?

Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.

However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?

More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.

Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.

Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.

It might sound complicated, but take it one step at a time and it’s actually quite manageable.

If you’re really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you’re terrified of numbers, rest assured that there’s a solution out there for you.

Hiring a bookkeeper VS. Doing it yourself

That really is up to you. In the early days, when your bookkeeping requirements are relatively simple and there isn’t the money to outsource the work to an accountant, you may choose to take on this task yourself.

This can be a worthwhile decision because in the process of ‘doing the books’ you can learn an awful lot about the business. It’ll also help you save every penny to grow your business.

There are also some drawbacks associated with doing your own bookkeeping – what would take a qualified accountant half an hour could take you the best part of an afternoon.

At some point the decision about whether to outsource this task will boil down to a simple time and cost comparison between the time it takes you to do the job, and the cost of hiring a specialist. After all, your time does have a value, and three or four hours away from your business every week is a high price to pay.

Another disadvantage of maintaining your own financial records is the risk of failing to meet all your legal obligations, simply because you are unaware of what is expected. Then there are the potential costs of missing out on tax deductions you didn’t realise were available.

Bookkeeping for your small business: A checklist

Daily checklist

Check your cash position: Do you have enough cash in the business to cover outgoing payments?

Weekly checklist

Prepare and send invoices: This can be a time consuming process but it’s one you need to complete to keep a steady flow of cash coming into the business.

Record your transactions: Keep a record of each transaction, whether it’s in an Excel spreadsheet or using specialist software. This should include money coming in from customers and payments made to employees, suppliers, HMRC etc.

File documents and receipts: Keep a hard copy of all the invoices you have sent during the week and receipts for all the cash payments you have made.

Pay suppliers: Review the ‘payment due’ dates on invoices from any unpaid suppliers and make the payments to avoid any late payment penalties. You may also choose to take advantage of early payment discounts if available.

Review your cash-flow: Check your cash-flow position to make sure you have enough cash in the business for the coming weeks and months.

Monthly checklist

Run your payroll and make the necessary payments to HMRC. You’ll have to report your employees’ payments and deductions to HMRC and pay HMRC based on your reports.

Review incoming payments: Are there any late payments you need to collect?

Check your bank statements: Review where money is being spent and check for fraud, banking mistakes etc.

Review monthly turnover/profit: Compare performance with past months to see if the business is growing.

Review outgoing payments: Make sure all payments that were due that month have been made.

VAT payments: Make advance payments on your VAT bill if you do so on a monthly basis

Quarterly checklist

VAT payments: Make advance payments on your VAT bill if you do so on a quarterly basis

Limited Company Expenses Guide

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Limited Company Expenses Guide

Small business bookkeeping tips you need to know

To make your small business bookkeeping process easier, here are some tips you can implement:

Use specialist accounting software

Specialist accounting software can make the whole process a lot less painful. Do your research and trial each package first to find the right solution for you. Start off with reading ByteStart’s guide on How to Choose the Best Online Accounting Software for Your Business.

Take advantage of HMRC's resources

HMRC offers free webinars and videos that can help to bring you up to speed.

Budget for tax

It’s a pretty obvious one this, but make sure you budget for tax.

Put 25-30% of income aside so you can pay your tax bills as they fall due.

Claim all legitimate expenses

It’s well worth spending some time reading up on the allowable business expenses. You should also keep all receipts, even for small expenses like printer ink and stationery.

Limited Company Expenses Guide

What's Inside:

  • Allowable business expenses
  • Employee expenses
  • Travel expenses
  • Office & equipment expenses
  • Professional services expenses
  • General expenses
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Limited Company Expenses Guide

What's Inside:

  • Allowable business expenses
  • Employee expenses
  • Travel expenses
  • Office & equipment expenses
  • Professional services expenses
  • General expenses

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Bookkeeping vs Accounting Differences Guide

Bookkeeping vs Accounting Differences

As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.

While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.

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Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.

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When Should I Hire a Small Business Accountant? Guide

When Should I Hire a Small Business Accountant?

If you're a self-employed person or small business owner, you might have already asked yourself the question, "Do I really need an accountant?"

When people ask that, they usually mean, "Can I justify the cost of an accountant?"

It seems simple: Hiring an accountant might seem like something you could do without, and if you handle the accounting yourself, you save money.

But that isn't the best way to think about it. The reality is that there are hidden costs associated with DIY accounting, and you don't want to come up short. So instead, ask yourself, "Will hiring an accountant add value to my business?"

The answer is yes.

Below, we'll cover the key cases when you should hire an accountant:

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Small Business Accounting Guide Guide

Small Business Accounting Guide

  • When and why you may want to register a Limited Company
  • Advantages and disadvantages of a Limited company
  • Limited company alternatives
  • When to register for VAT
  • Advantages and disadvantages of VAT
  • How to take money out of your company
  • Dividend tax rates
  • Limited company expenses & corporation tax
  • Annual accounts and deadlines
  • Confirmation statements and deadlines
  • Self Assessment tax returns
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My tax code is incorrect ‚- how do I change it?

If your tax code is incorrect, you can use HMRC's check your Income Tax service to notify them. If you're not able to use the online service, you may get in touch with HMRC through other contact methods.

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How do I find an accountant? Guide

How do I find an accountant?

In today's times, you can find an accountant pretty much anywhere you go whether that's walking down the high street or browsing the internet. Take a look at our guide on choosing an accountant to get some tips on what to look out for when choosing an accountant.

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What can accountants help contractors with? Guide

What can accountants help contractors with?

The goals for accountant's is to help businesses with tax and compliance duties whilst providing strategic advice to save money and time, allowing the business to focus on it's core activities.

Everyone knows that accountants will complete tax returns and accounts but the very best accountants will go one step further in ensuring the very best for the business.

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How do I depreciate an asset?

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How to find an accountant Guide

How to find an accountant

If you have a company, or are starting one, then you will need an accountant.

Though you could do all your accounts yourself, in practice few business owners have the time.

An accountant also checks that you are doing everything correctly, and is a useful reference for both HMRC and financial institutions should you ever need to apply for a loan.

The trouble is that finding the accountant who is right for you is never easy.

You do not want to pay more than you have to, but are low-cost, self-service, internet-based accountancy packages really the best fit for your business needs?

In this article we shall break down that option and its alternatives for you, as we answer the key questions that are occupying your mind right now:

  • Do I need an accountant?
  • What should I look for in an accountant?
  • How do I find the best accountant for me?

The purpose of this article is to give you the context and background you need to ask the right questions-especially when you may not yet know what those questions are.

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How do accountants charge contractors? Guide

How do accountants charge contractors?

Like with all service offerings, you can find contractor accountants at pretty much every price point. Some accountants will charge by the hour, some by piece of work or like ourselves, will offer a fixed monthly fee covering everything you will need in one clear package.

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How do I resell goods I have purchased? Guide

How do I resell goods I have purchased?

NA

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How do I transfer or change accountants?

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Are there any penalties for delivering Company Accounts late? Guide

Are there any penalties for delivering Company Accounts late?

The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:

  • Up to 1 month late: £150
  • 1 - 3 months late: £375
  • 3 - 6 months late: £750
  • More than 6 months late: £1,500
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5 Common Small Business Accounting Mistakes & How to Fix Them Guide

5 Common Small Business Accounting Mistakes & How to Fix Them

A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks.

While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.

Here are five accounting mistakes that can derail growth for small businesses and how to avoid them.

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Contractor Accounting Services Guide

Contractor Accounting Services

We pride ourselves on providing an unparalleled level of support that will make you feel valued, eliminate your admin and ensure you're being as tax efficient as possible.

VAT registration & filing

We'll registered your company for VAT, and ensure VAT is always filed well ahead of the deadline. We will ask you to confirm that you're happy for us to automatically file your VAT without having to approve it which will ensure that we can get this filed as soon as possible.

We'll also help you get setup with a Direct Debit for HMRC so that you can make your VATpayments automatically without having to manually do this every quarter. This saves you time and the stress of ensuring you've paid on time, and importantly will make sure you don't have to pay a penalty for a missed deadline.

Annual accounts

We aim to complete your annual accounts well ahead of schedule to ensure you have complete financial records.

Corporation tax

You should never have to guess how much corporation tax is due. We'll make sure you know how much is due and when it's due.

Confirmation statement

We'll make sure to keep your Companies House account up to date and ensure your confirmation statement is filed on time.

Self assessment

We include a Self Assessment with our operate and grow packages and this is also available as an additional £99+VAT one-off charge.

Tax efficiency

From your salary, dividends, pension, investments and company expenses, we'll help you optimise your tax.

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Creating your business budget Guide

Creating your business budget

Running a business involves catering for many aspects of the business that can bog you down.

You can even forget crucial roles, such as monitoring your small business finances. Although budgeting may not be the best and most exciting part of running an enterprise, it is fundamental for success.

When starting a new business, a budget is a vital part of your business plan. Once the business is open and operational, then budgeting becomes an essential exercise that takes place annually or quarterly.

A budget comprises of fixed and variable costs accompanied by the allocation of monies to reflect business objectives.

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Where can I find my Accounts Office Reference number?

You can locate your Accounts Office Reference number (AORN) on the confirmation letter you receive from HMRC when you first register as an employer. The AORN contains 13 characters, and follows the format 123PA12345678.

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How do I dispose of an asset?

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How do I plan cashflow?

Here are a few strategies to better cash flow management:

Be rigorous about updating your cash flow: It can be helpful to update your cash flow whenever there is new information-such as when you've made a payment, or when a client informs you that a payment is coming in late. You'll need to have a system for managing your cash flow, whether that's a spreadsheet or cash flow management tool.

Carry out an in-depth analysis on a regular basis: Carve out a block of time each quarter to carry out an in-depth review of your cash flow. You'll want to assess your overall financial position, and look ahead at your cash flow projection for the next quarter.

Implement milestone payments for extended projects: If you're working on an extended project, consider structuring your payments by milestones-rather than receiving a single payment at the end of the project.

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How to make and send an invoice for your clients Guide

How to make and send an invoice for your clients

You've delivered your work, and it's time to receive your payment.

Before that, you'll need to make an invoice. It's an important document: not only does it help you obtain money you're owed, it also serves as evidence of a transaction in the event that you need to seek legal action to handle non-paying clients.

If this is new to you, you might be wondering: How do I create an invoice, and what must I include? Are there best practices or tips I need to know?

We'll answer all of these questions below:

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Beginner's Guide to Bookkeeping for Small Business Guide

Beginner's Guide to Bookkeeping for Small Business

Starting a new business?

Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.

However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?

More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.

Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.

Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.

It might sound complicated, but take it one step at a time and it's actually quite manageable.

If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.

Read Full GuideRead Full GuideCalculate Now

Download Now:

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Limited Company Expenses Guide