As a startup, it is tempting to focus purely on activities that will help you to increase sales or market share. Indeed, this is the main challenge for the future development of your company by a significant margin. It is, however, only one aspect of starting a new company. It is also of vital importance to ensure that the everyday operations of your company are running smoothly and you are complying with your responsibilities as company director.
One of the most fundamental of these responsibilities is bookkeeping. Bookkeeping is essentially keeping a ledger (record) of all business transactions; funds that come into or leave your commercial bank account. This includes payments to suppliers, company expenses, director’s loan payments, payments from clients and interest/charges from the bank. This list of transactions then has to be reconciled (i.e. checked to make sure it corresponds) with the bank statement.
If you do not keep an accurate record of income and outgoings, you will not be able to submit accurate accounts at the end of your financial year and you can be subject to penalties from HMRC. Perhaps even more importantly, bookkeeping is an activity which, if done incorrectly or messily, will take many many more hours to sort out than if it had been done properly in the first place. On too many occasions do we see enquiries from people who have not been keeping track of invoices and receipts having to spend hours tracking them down or requesting them again from suppliers with deadlines approaching.
The key? Put a robust system in place as soon as you start trading and get into the habit of keeping everything up to date and the bookkeeping will practically take care of itself.
To an extent, the nature of your bookkeeping will depend on the industry you are working in. If you have a property rental business (B2B), then you are probably dealing predominantly with a relatively low volume of high-value monthly transactions. If you run a pub (B2C), then you are potentially looking at hundreds of individual transactions per day.
With the former example, you might have so few transactions that you can simply enter them into an Excel spreadsheet. With the latter example, you would need to invest in a system that can categorise your sales and come up with a daily record of total transactions.
One of the first questions to ask yourself is: are you going to do your own bookkeeping (generally a cheaper option but we can’t stress enough the potential costs and false economy if your bookkeeping is not done properly!) or will your accountant be responsible for it?
If you are intending to do it yourself, it is probably worth having a conversation with your accountant to find out what format or software would be best to use. There are dozens of different bookkeeping programmes and, to an extent, which one you choose will depend on the nature of your business, but by far and away the most popular options are Excel, Quickbooks or Xero (we work with Quickbooks as they provide phone support, and we can provide their software for a lower price than if you go direct). Whichever system you choose, be sure to watch the many online tutorials, perhaps book a training course and familiarise yourself with the system as early as possible.
Aside from knowing how the software works, it is also vital to keep your records organised. This essentially means filing an invoice or receipt as soon as it has been issued. You are required by law to keep all invoices for 6 years and you can be fined £3,000 by HMRC or disqualified as a company director if you do not keep accounting records.
These days, cloud-based storage systems make it so much easier to file an invoice from your phone or share documents with your accountant. Sending documents by email is a highly inefficient way of working.
Furthermore, in most cases, HMRC will accept a scan or a photograph of an original document, though there are exceptions for documents that show taxes other than VAT, for example dividend vouchers or bank interest certificates, so check before throwing anything away. You can even use software such as Receipt Bank to do this for you automatically. Just be sure that your system is secure and that your documents are all backed up.
If you would like to discuss your bookkeeping in more detail, or would like some advice about what’s best for you, please don’t hesitate to get in touch.