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Bookkeeping and Accounts

By: Garry Pierrepont - Updated: 24 Sep 2012 | comments

Most new business owners have one particular dislike above all other aspects of running a business: “doing the books”. Keeping records is not what most entrepreneurs get into business for. Yet, of course, being in business is all about making money, so the finances of a business should be of prime interest to business owners.

Yes, the finances are of interest to a business owner.

No, bookkeeping and doing the accounts are not.

Nevertheless, one thing is for sure: without keeping the books up to date, the finances of the business will get into a mess, and failure of the business will soon follow.

This means keeping the records organised from Day One. Having said that, a late start is better than no start, so if you’re a month in, two months in, six months in, and you haven’t yet started keeping your books … now is the time to start.

Running a successful business is all about having a set of processes to follow. One set of those processes should be about accounts.

There are two fundamental reasons for good bookkeeping:

You need to keep full and correct records for tax purposes. The Tax man can inspect at any time, and you are required by law to keep documents relating to your finances.
You need good bookkeeping records to enable you to understand what is going on in your business, especially with regard to cash flow.

You need to keep the following fundamental records:

what you have sold for cash
what you have sold for which people still owe you
what you have paid for in cash
what you still need to pay for
what the business owns in terms of stock and assets

In addition, once the business employs staff you need to keep even more meticulous records, especially as you’re acting as tax collector for the government (PAYE).

The following simple processes should help you keep track.

Sales

Each time you make a sale – or indeed sell anything that belong to the business, record the following information:

invoice number
name of buyer
amount
date of sale
date payment due
date payment is received
how payment is made (bank, cash, Paypal account etc)

Purchases

Each time you purchase something, record the following information:

purchase order number
name of payee
amount
date of purchase
date payment due
day payment sent
how payment is made (bank, cash, Paypal account etc)

If you are VAT-registered you also need to keep a record of the amount of VAT due for both sales and purchases.

To keep a record of the business’s finances in the past, present and future a simple record can be kept.

Track the money you have in various accounts (cash, current account, deposit account, other accounts such as Paypal etc).
Record each invoice (money in), noting where the money goes
Record each purchase order (money out), noting where the money comes from

If you do this as soon as an invoice or purchase order is raised you will have a simple method of showing where the money is on any day, what the total is and a reference to the sale or purchase (invoice or purchase order number). This works just as well for future sales and purchases and you can see whether your cash flow is going to hold up well.

Fixed Assets

Limited companies must keep a record of fixed assets, by law. This is simply a list, but should show cost of the asset and the amount of depreciation.

The Bigger The Business, The More Complicated It Gets

This is true, but if you start off with good practices and processes, then there is no reason why those processes cannot be applied across the whole of the business to all who work for it.

Keeping accurate accounts is something that cannot and should not be avoided. Up to date records will help you keep your business under control and a visit from the tax man will hold no fears.