Bookkeeping and accounting are two essentially different things, but you probably already know this as a small business owner. Accounting is more complex and involves figuring out your company’s financial position, and it also helps you make wiser decisions regarding your business. But bookkeeping is the act of recording and reporting various financial information and data to make the best decisions. In other words, bookkeeping gives you the info – and accounting helps you act on it. Your accounting needs can – and should – be done by a professional, but you can do your bookkeeping yourself if you are so inclined. But what should you understand about proper bookkeeping to make the task easier? Here are some top bookkeeping tips for your small business: what you need to know.
- Know precisely what is included
Of course, bookkeeping involves several tasks, and it includes making your payments and bills, getting paid by your customers, and making sure that your business pays the proper taxes. It also includes such matters as claiming taxes and managing your payroll. With bookkeeping, you need to have three records for your finances: your cashbook, sales invoice, and purchase invoice. The cashbook should include your cash flow record. On the other hand, the sales invoice should have a record of what you have sold, and it should consist of both your unpaid and paid invoices. The purchase invoice is a record of what you have purchased and how you have settled the payment for each.
- Maintain records and choose the correct method
It takes time to maintain your records, but it’s a necessary task and endeavour. You should make proper use of your books to record and track each payment, and you should also note down clearly where you made the payment and where you received it so you can more easily locate the record when needed.
It also pays to choose the right method, whether you will go for the traditional method of accounting with a record of your income plus expenses at the invoice date or cash accounting which records the data on the actual date or day you receive the money or pay it. You can choose cash accounting if you want to decrease your risk of paying taxes on money that you have not received. However, keep in mind that you can only use it if you have a turnover of less than or equal to £83000, as confirmed by the experienced accountants in central London from GSM & Co.
- Always keep an eye on deadlines
It will not do to settle payments beyond the deadline because you will have to contend with fines and penalties. This is especially true if you are making a payment to HMRC. You should also give your clients a deadline for payments so you can avoid chasing down late payments, which takes a lot of time and effort. If you do have to chase late payments, think carefully about whether you should still work with that client in the future because clients who are regularly late can affect your cash flow.
Keep precise track of whatever expenses you have, and to make the process easier, choose the right software – you can use Excel at first, but as your business grows, it may be time to select a package that’s more suitable as well.