Book-Keeping
Many businesses spend hours on book-keeping but achieve little. Many other businesses “bury their heads in the sand” and simply don’t do anything at all!
There is a legal requirement for all businesses and the self employed to keep complete and accurate accounting records.
There is an excellent article on the ICPA website by Mark McLaughlin about the risks of having inadequate book-keeping:-
The best way to do keep proper records is to use proper accounting software such as Xero, Quickbooks, Kashflow, FreeAgent, Quickbooks or VT.
Improved bookkeeping can be achieved in the following ways.
• Use a simple computer software package.
• Reduce the number of transactions.
• Keep business and private transactions completely separate.
• Avoid cash transactions where possible.
• Properly administer petty cash
• Keep separate bank accounts.
• Use a separate credit card.
• Keep completely up to date
Computerisation
Many small businesses already use a computer system for word-processing, stock
control, spreadsheets, databases or invoicing. Until recently, accounting and
payroll software has been expensive and hard to use. A new breed of software is
now available cheaply or even free, aimed at the very small business, and being
simple to use. Using accounting software will increase the accuracy of your
records and save you time. You will also be able to see “at a glance”
how well your business is performing.
Transactions
The fewer individual transactions you have, the fewer entries you will need to
make. No – we’re not telling you to leave transactions out of your records! You
need to reduce the number of payments you make. With fewer transactions, your
bookkeeping time is reduced and there is far less chance of errors. This can be
achieved very simply – use one cheque to pay several bills from the same
supplier, use fewer suppliers, use a petty cash reimbursement system, use a
credit card for your business expenses. With fewer transactions to review, your
annual accountant’s bills are likely to be lower!
Distinction Between Business And Private
Never treat the business and your private monies as the same. There must be a
clear distinction between business and private transactions. Anything that is
private must not be put through the business books. If you have expenses that
are partly business and partly private, you are better paying them privately
and letting your accountant know about them at the year end. By doing this, the
volume of transactions through your business account are minimised. There is no
legal requirement to keep detailed or accurate records of your private
payments. Set-up a regular weekly or monthly standing order from your business
account to your private account and then draw your spending money and pay your
private bills from your private account!
Avoid Cash Transactions
It is very tempting to use cash sales to pay bills and other expenses. This
practice should be avoided at all costs unless your bookkeeping is perfect and
you can keep an accurate daily summary of cash in and cash out, balanced to
daily cash in hand. By using cash sales to pay bills, you immediately lose a
valuable audit trail and the probability of cash differences increases. HM
Revenue & Customs will attempt to argue that cash sales have been
under-recorded and cash payments over-recorded if differences arise – resulting
in higher tax bills for you and penalties! You should try to bank all your
sales income and pay all expenses by cheque – this produces a valuable audit
trail – your bank statements – to “prove” your transactions and reduce
the risk of problems with the tax authorities. You should try to minimise any
additional bank charges by changing your business bank to one with lower
charges, or to open another business bank account specifically to handle cash
bankings – many banks and building societies offer free banking – shop around
for the cheapest options! The taxation authorities will always regard
businesses with cash sales as “high risk” – the proprietors have the
opportunity to “pocket” sales income without recording it in the
accounting records. They have recently started to “count” customers
in and out of businesses and even watch the tills “under cover” to
estimate takings – they then check the recorded takings at a later date and
charge tax on any differences!
Petty Cash
Please don’t clutter your accounting records with hundreds of entries for
individual small cash payments, such as till slips, milk, window cleaning etc.
Pay these out of your own pocket, keep the receipts or a petty cash voucher.
Every week or month, just make a list of the payments you have made, and write
yourself a business cheque to repay the money to you from the business – simple
– just one line in your accounting records!
Bank Accounts
You should have a separate designated bank account for your business. Put all
sales and business income into this account, and pay all business expenses out
of this account. Avoid, at all costs, paying private monies into the business
account or paying private expenses out of the business account. By doing this
simple procedure, your accounting records will only contain business
transactions – why waste time and effort writing your private transactions into
the business records, simply to put them in the “private” column! As
banks often charge for business accounts, if you trade under your own name, and
not through a limited company, you may be able to use a second “personal
current account” from your own bank or building society. As long as the
number of transactions is not too high and you are not paying in loads of “cash”
there should be no problem. If you need a business account because of a trading
name, or you have a limited company, chose a bank offering “free
banking” for one/two years. After the free period, change your bank to the
next on the high street, and so on. Some postal and telephone banks offer
“free” business banking and offer credit interest.
Credit Cards
Most businesses now accept credit cards. Get a separate credit card for use
only for business expenses and use it as much as possible! Keep your card in
your purse or wallet. On your monthly credit card statement will be a record of
your business expenses, you just make a “one line” entry in your
accounting records. Remember, you must still get receipts or invoices – a
credit card slip is not good enough – staple the invoices to the credit card
bill and file it. Make sure you pay your credit card bill in full each month
and you won’t pay interest – probably a better deal than getting goods on
credit – and certainly simpler than writing cheques to your suppliers at every
month end!
Sales Income
Try to avoid giving credit. If you really have to, make sure that you issue
regular statements and chase debtors regularly. Start as you mean to go on –
your customers will take advantage if they get the chance! Always ensure that
an invoice is sent with the goods or as soon as the work is completed – it is
always better to hand the invoice personally to the customer – they may even
offer to pay! Seriously consider accepting credit cards. You would receive the
money within a few days, your customers get credit, and you immediately reduce
risks of bad debts. The costs of accepting credit cards are getting lower and
more and more businesses are accepting cards – more importantly, more and more
customers expect businesses to accept cards!
Paperwork
Don’t throw it away. Keep all invoices, statements, delivery notes, even
diaries and general correspondence, etc for as long as possible. You may not
think you need them, but your accountant probably will, and the tax authorities
certainly will in a tax enquiry! Many items have to be kept for six years by
law, but it’s even better to keep things for longer than that and some
documents should be kept indefinitely – seek your accountant’s advice before
throwing anything away and make sure that you store them somewhere safe where
they won’t get lost, damaged or stolen. In case of tax investigation, keeping
everything will help your defence against unfounded or false allegations raised
by the tax inspector.
Organisation
If you are up to date, your accounting and book-keeping should take very little
time. Time consuming problems arise when you ignore it for weeks – you then
need a day or two to sort it out. Put a small amount of time aside every day to
keep up to date with the paperwork and you won’t even miss the time spent! More
time is wasted in continually looking for things, trying to sort things out,
constantly looking back etc.!
Never pay round sums to your suppliers – if you cannot afford the full amount of the month end statement, just pay some of the bills, and pay the others later – this stops your accounts and your suppliers accounts getting in a mess!
Don’t ‘contra’ if you and your suppliers/customers owe money to each other. You should write and swap cheques to keep your records straight and up to date. If, for example, you owed a supplier, say £10,000 who also owed you £12,000, if your supplier went bust, the receivers would still demand the £10,000 from you – you cannot set off the amount owed to you! A very costly mistake to many businesses!
Summary
With a bit of time and organisation, every business could save valuable time,
improve its accounting records, reduce annual accountants bills and reduce the
risk of problems with the tax authorities.
Delegate
If you don’t have the time or inclination to do your own bookkeeping, then get
someone else to do it for you. You can’t abdicate your bookkeeping
responsibilities, but you can certainly delegate it to someone leaving you with
more time to enjoy or grow your business.
Contact us for more information about I can help you with your bookkeeping or you may like to read the excellent bookkeeping for dummies book to learn about the basics:
