How’s your record keeping?
When you’re running your own business, even if your business is very small, it’s important to make sure you keep your records and accounting system in order. Not only does this help you to pay the right amount of tax at the right time, you’ll also have valuable, real-time information about your business’s profitability and its cashflow.
As Chief Accountant to FreeAgent, here are my five top record-keeping tips for micro business owners.
1. Keep your records carefully
Make sure you keep all your business paperwork, either in paper form, or scanned. HMRC are quite happy for you to keep your business records as soft copies, so long as you can access them readily, and if a document has writing on both sides (such as a bill with terms and conditions on its back) you must scan both sides of the document.
The exception to that is anything that has a tax deduction written on the piece of paper, such as a dividend voucher, or bank interest certificate. In that case you must keep the hard copy.
If you’re keeping scanned copies of your receipts, use an online backup system such as Depositit to make sure that your records are safe if your computer is stolen or corrupted.
However you keep your records, have a system and stick to it. Make sure you can easily lay hands on any piece of paper in your system, in case of a query from your accountant or from HMRC as well as in case you need it. Sort documents by type (e.g. invoices, bills, bank statements) and by order such as date or alphabetical or both.
If you’re using online accounting software such as FreeAgent, you can also attach scanned copies of documents such as bills to the entries in the software. This will save you having to look for them later.
2. Invoice online
Time is very precious when you’re running a micro business. You can save time (and incidentally save paper too) by e-mailing your estimates and invoices to your customers, and chasing any customers who don’t pay when they should, with automatic e-mails. This also helps you make sure you get paid the money you’ve earned for your hard work!
Plus the fact that if HMRC ever investigate your records, they will want to see that your invoicing fits with their requirements, particularly if your business is registered for VAT, and doing this online will help to make sure that you are complying with these rules.
3. Track your cash in and out
Cash is the lifeblood of any business. If you don’t know what’s come in and what’s going out, you won’t know if you have enough money to pay your upcoming bills and taxes, and you won’t know what you can afford to do next. Can you afford that new piece of software to manage your sales and purchase orders? What if a big customer doesn’t pay you?
Make use of the speed and convenience of online banking by downloading your transactions straight from your bank account – or, if possible, have your bank records in your accounting software synchronise with your online bank account and pull in the transactions automatically.
4. Track all your expenses
As well as paying for business costs directly from your business’s bank account, you’ll almost certainly spend money out of your own pocket on business expenses. For example, if you travel to visit a client and buy your train ticket using a personal credit card, that still counts as a cost of your business. If you don’t put that ticket into your accounts as a cost, then your profit will look higher than it actually was, which means that you’ll pay too much tax, and also you’ll be personally out of pocket because your business won’t pay you back.
Make sure you track all of your expenses properly and consider using a tool like ReceiptBank, which enables you to photograph your expense receipts on your iPhone and feed them automatically into your accounts.
5. Keep on top of your bills
Don’t spoil relationships with your suppliers by forgetting to pay your bills. Keep track of any bills that you’re not going to pay straight away, and make sure you know when they’re due to be paid, so that you can pay them on time. This will keep your relationships with your suppliers strong, and might also save you money if your suppliers offer early payment discounts.
You can do all of the above easily, and automatically produce management accounts so that you know what’s happening to your business in real time, by using a simple online accounting system.
Record-keeping is never the most interesting of jobs, but it’s much easier to handle if you make use of the tools available and keep your records regularly updated. It’s easier to do an hour a week than to have to spend a month collecting your information at year end – and you could also save on accountants’ fees by keeping your records and paperwork in apple-pie order.
Today’s Micro Action
Which of the tools mentioned in this article could help you get a handle on your record keeping? Spend 15 minutes today exploring the options and identifying what could help you work smarter.