What every self-employed person needs to know, but doesn’t want to ask – what is bookkeeping?

Bookkeeping and why it matters

Everyone has some way or another for recording their business finances or money in and out, from the super organised, to those who put off to another day and then lose essentials receipts or just never get around to it.

Whether it is something that you enjoy or not, bookkeeping is essential. All businesses need to keep track of their income and expenses and if you do not keep on top of your cash flow this will impact on decision making, forward planning and ultimately how successful your business is.

What is bookkeeping?

Bookkeeping is the art of recording your financial information so that it is easy to see what money is coming in - your income - and what you are spending - your expenses.

To help your business to be successful, you should balance the books every single month, otherwise, you might struggle with paying for a direct cost like stock or supplies, and indirect costs like insurance or website hosting, and later on your taxes.

If you did not get into a good habit at the start of your business, it is never too later to put together a firm process that makes sense to you, to manage your accounts.

Is bookkeeping important?

It is essential so that you can run your business successfully, with a clear understanding of your budget for expenses, future investments on new stock, marketing campaigns and other areas that you want to utilise to increase your business turnover. For this, you will need a sound knowledge of your finances.

Whether you are a sole trader or partnership, you will need to know what taxes and other payments will be due at the end of your tax year. A lot of small business owners have the big fear of a large or unexpected tax bill, but with a little help to estimate any future bills, you can remove that fear.

Anyone who is self-employed needs to file a Self-Assessment tax return every year. This is a legal requirement and used to declare your earnings from employment and other income to HMRC, who will then calculate how much you will need to pay in National Insurance and Income Tax. To do this effectively, your bookkeeping must be organised.

It is also worth remembering that if you dream of expanding your business, you will need to be able to prove its profitability to investors, new partners, and banks. Good bookkeeping practices can help you with this.

Start your bookkeeping now

Set aside some time each day or at a minimum each week, whereby you collate all the bookkeeping, gather receipts and invoices and record these in a way that makes sense to you, making this an integral part of business management.

If you find this difficult then we can help make it simple, whilst giving you more accurate account or estimation of what your TAX and NI bills will look like at the end of the end of the tax year.

Always keep your receipts

By keeping your receipts in order, you will never miss an expense that should be listed, with clear understanding of what your expenses are going on. Make sure that you retain evidence of all your expenses, for submitting to an accountant or in case HMRC want to investigate your business.

HMRC require you to keep all this evidence, usually for at least six years. HMRC may ask to see these receipts, and you will leave yourself open to further investigation should you not have anything to provide, so make sure you’re keeping evidence of all your business expenses.

Don’t put off till tomorrow what you can do today

Like any task, bookkeeping is far less time-consuming and confusing if it is completed regularly. While it is incredibly easy to prioritise more hands-on and interesting tasks, running your own business can be a short-lived venture if your accounts are a mess.

Many people submit their Self-Assessment tax returns late and after the 31st of January deadline day every year, according to HMRC. Think of all the stress and lost custom these people have put themselves through, all the while wishing they had started sooner.

If you don’t this could result in you feeling stressed and anxious, unable to commit to longer term business strategies, or paying more tax than necessary, or even worse, being penalised for missing a deadline.

Find out how we can assist you to manage this essential part of your business more efficiently, saving time, money and reducing stress and potential bills.