Whether you’re making a bit of extra cash to pay for family treats or you’re full-time self-employed, you need to keep track of income and expenses. It’s vital for your own success and growth in business, but also a legal necessity because when you’re making money, the taxman wants to know about it.
Bookkeeping also helps you spot where you’re spending more than you should (or want), so you have the chance to trim expenses and make money go further.
Open a Separate Bank Account for Business
This should be one of your first tasks. It’s easy to do, doesn’t take long, and you shouldn’t need business records, proof of income or a business plan unless you want to borrow money.
Keeping business spending separate from personal spending is important for various reasons:
- It makes accounting much easier when every transaction through the bank relates in some way to the business. You’ll save time by not having to weed out grocery shopping or ponder whether a certain subscription charge is for something personal or for work.
- If and when you employ professional bookkeeping help, you won’t be giving them access to your personal bank account. Not only does this keep your private life private, it leads to lower accountancy charges because they can get straight on with their job without having to plough through unrelated transactions.
- If you use online accountancy, you may be able to synchronise your bank account with your bookkeeping so all your transactions are automatically captured.
- It makes budgeting for tax easier as you can estimate your likely tax bill as you go, and set that money aside by simply not treating it as your own.
Keep all Your Receipts
These form your paper trail, your proof of where and for what you spent the money. They help you keep your written records up to date (you can check back for anything you’ve missed if your columns don’t balance), but they’re also a legally required part of your records when you’re in business.
You don’t have to keep all the paper copies if you have digital alternatives. Create your own digital copies by photographing receipts or scanning them, then saving the files on your own computer or in the cloud. Remember to name files logically for date and type, and to make backups, just in case.
Set Up Your System
It doesn’t take complicated software or extensive accounting knowledge to set up an effective accounting system. In fact, if you’re just recording income and expense all you need is a notebook. You can delve a bit deeper and automate some reckoning functions by using Excel or an online accounting package.
Alternatively, a professional bookkeeper would work with you for a couple of hours a week if record-keeping really isn’t your thing. They can also help you set up the kind of system that accountants prefer if you plan on using an accountant to compile your end-of-year records and submit your tax return. Handing end of year books over to an accountant can also save money as they’ll make sure you’re claiming all your allowances.
At its most basic, bookkeeping is simply balancing expense with income. To start, gather up bank statements and find your opening balance (how much is available in your account). Deduct any sums still to come out via direct debit or standing order so you get the true picture for the remaining time till payday (or whenever you next expect to receive money).
Make a record of every transaction (no matter how small) from now on, subtracting the amount from your latest balance. You’ll see very quickly if you’re spending faster than you’re earning and, forewarned, be able to make adjustments.
Bookkeeping is often seen as a chore but tackled regularly and systematically, it doesn’t take long. After just a few weeks or months, you have a clear picture of how your money is behaving, and this helps you cut unnecessary expense and save more.