By Conor McArdle, Opus Energy
Spring is here, and there’s no better time to tidy up your business figures and make your SME ready for fresh new growth in the months ahead!
Paperwork isn’t the most exciting part of running a small business, and spending valuable time adding up receipts or balancing invoices is no one’s idea of fun. However, as every small business owner will know, it’s a necessary evil, and something you have no choice but to stay on top of if you want your company to be a success.
Being in control of your book-keeping will also help you to maintain a healthy cash-flow, and keep an eye on the trends in your finances; allowing you to spot problems early on.
We’ve put together a list of some book-keeping basics that every business owner should know, whether you have a workforce of 100, or 1.
Review your banking
The first step is to look at the service you’re getting from your bank, and evaluate whether or not you’re getting the best possible deal for the type of business you are.
Reviewing the benefits of your bank now will mean you’re ready when the time comes for you to ask for extra services, such as loans or insurance. So ask yourself – would another bank give you the services you need at a better price? Are you currently being charged for services you could do without?
Review your VAT
Reacquaint yourself with VAT rules to make sure you know how much to charge and reclaim on all transactions, both current and historic.
The rate you charge to your customers will depend on the goods or services you sell, and if you’re not sure what this should be then the best idea will be to check HMRC’s guidance, or ask your accountant
Additionally, you can often expect to be charged VAT by your suppliers, which you may be able to reclaim. However, you can’t reclaim all the VAT you’re charged. Rules and regulations can seem complicated at first glance, but clearing up confusions at an early stage can save you a lot of trouble later on.
Check bank statements
It’s useful to get in the habit of checking your bank statements every month. This will allow you to gain a better understanding of the ins and outs of your finances, as well as helping to prevent the risk of fraud or banking errors.
The most successful businesses spend their money wisely and have formidable credit control. Make sure you’re one of them.
Collect Receipts for everything
It isn’t uncommon for small businesses to be part of a VAT or tax investigation, and they’re not usually anything to worry about, just as long as you have all the necessary paperwork and a sound financial advisor. So get in the habit of keeping a hard record of every transaction. It’s easier to collect them now than to try to go back and find them months or even years down the line.
Keep your accounts clean – separate business and personal expenses
Try not to confuse business accounts by using the company’s money on personal expenses. Even if you own the entire business, as a director it is not advisable to spend the money made by the business on your own purchases. Make sure you’re tracking separate costs reliably, so you can easily see how each cost has been paid for.
So set up a separate bank account, and do your best to keep your accounts clean.
Do your book-keeping regularly
Set time aside each week to do your book-keeping. As simple as this may sound, it’s one of the most important jobs you can do to ensure the success of your business.
Although it might be tempting when you’re just starting out to cram your book-keeping into the evenings or weekends, you’re more liable to make mistakes when you’re tired or rushing. So schedule in a regular slot where you can give your accounts your full attention.
Get help with your finances
If you find that your accounting needs are too great for just you, then consider hiring an accountant. A proactive accountant can save you more money than they cost to hire, and can even help you substantially increase your profits.
It’s always a good idea to ask local business owners for recommendations when it comes to accountants, or alternatively the Institute of Certified Book-keepers has thousands of qualified book-keepers on its books, and can put you in touch with someone local.
Your accountant will advise about what your business specifically needs. But in general you should maintain three sets of records. These are:
- Cash book
This should document all payments into and out of your bank account. In the future, this will become useful as a forecasting tool as well as a historical record of your transactions.
- Purchase invoice file
Get in the habit of making notes on invoices giving information on when and how you paid them, whether by cheque, cash or other. Putting them into a chronological order will make yours (and your accountant’s) life a lot easier.
- Sales invoice file
Keep a record of all of these invoices, and just as with the above, keep them in a chronological order. Keep those which haven’t yet been paid at the front of your file to help you credit control.
Uploading invoices to the cloud will ensure they’re backed up, so there’s no chance of you losing them.
Balancing your books doesn’t have to be a chore. All you need is a reliable and consistent system in place, and some basic financial know-how. For bigger companies, it may be a good investment to hire an accountant who can take on this responsibility for you, and leave more time for you to focus on the important job of making your SME as effective and profitable as possible.