How to make small business accounting (mostly) painless
If you run your own business, then small business accounting might be something which fills you with dread, but it doesn’t need to if you follow some simple guidelines.
As long as you keep good records and understand the basic requirements you can stay on top of your without losing focus on running a great business.
Separate business and personal finance
One of the biggest mistakes a lot of small businesses make is to not separate out their business and personal finances.
Remember that your business is a separate legal entity from you. It has to pay its own taxes and keep separate records, which creates a major headache if all of your transactions use the same account.
The easiest way to tackle this is by setting up a business bank account, which will make it much easier to compile the figures which make up your annual accounts.
Keep good records
One of the real pitfalls of small business accounting is poor record keeping, even though it is surprisingly simple and not particularly time-consuming.
The most basic step is to keep all your receipts and invoices in one place and well organised. You can then combine this information with the transaction records from your business account to create accurate accounts.
You should also keep copies of all letters from the tax authorities, including emails. These often include important dates and information for submitting your accounts.
If in doubt, get advice
When you first start out you might find you need to sit with someone who has genuine expertise in small business accounting. Don’t be embarrassed to ask for this kind of advice.
You may be able to get free advice from your bank, from local organisations set up to help small businesses or even through government bodies which have an interest in encouraging or supporting small businesses.
They can provide you with example accounts, lists of key dates and requirements, and even suggest ways of working that help you to keep good records.
Commit some time to understanding the basics
You can save yourself a lot of heartache and frustration by taking responsibility for understanding and getting to grips with the basics.
Just spend a few hours reading through the official guidance and use expert blogs like this one to identify ways in which you can do simple things to get good results.
Make sure you make a note of when you need to file your accounts and tax returns, and plan in some time to make sure you are prepared.
Learn the small business accounting process
Even if you have completed your accounts using good, up-to-date records and your business is humming along nicely, you can be tripped up if you haven’t understood the process.
For example, you often have to register ahead of time to submit your accounts on-line. If you leave it to the last minute you might be unable to register in time, and miss the deadline, which will incur a fine.
Similarly, if you are submitting your accounts by post remember to leave plenty of time before the deadline. Ideally you should leave long enough that you can re-send them if they get lost in the post.
Plan to pay your taxes
Many businesses get carried away with success and forget that all they can’t keep all of that profit. The government has to tax you on those profits so it can pay for the transport infrastructure, hospitals, education system and other vital public services that enable your business to function in the first place.
Taxes usually only apply to profits above a certain level, so if you think you might exceed that make sure you put a little bit of money aside to pay your tax bill.
The same safety-first approach applies to VAT or any other sales tax; make sure you know how much you will have to pay to the government and keep it aside.
Use an accountant
As a business owner, you will probably face the question of whether to get a qualified person to do your small business accounting. This could be an individual you employ or contract part-time, or you could use an accounting firm.
If you take this approach you will have some peace-of-mind that you no longer have to worry about the record keeping and technical aspects. But you will be spending extra money for that service.
Using an individual means you have a direct relationship with that person, and that can be great for some people. Using an accounting firm makes it more impersonal but you aren’t relying on just one person, who may be ill or on holiday when you need them.
The bottom line for small business accounting is that you can master this relatively straightforward process, as long as you keep your personal and business finances separate and spend a little time in planning and preparation. You will find lots of good sources of advice to help you and, if you still feel overwhelmed, you can get someone qualified to help.