Posted: 11th May 2015
I’m a chartered accountant. No, I’m not a fat man in a pin-striped suit. I’m a woman in a pink jacket and grey skirt. And I’ve seen far too many business owners struggling to keep good records of their business’s income and expenditure, money received and money spent.
Admittedly, men are worse at this than women –particularly, for some reason, men called Peter. I kid you not. At one accountancy practice I know, nearly every client called Peter has problems with his record-keeping.
But when you’re starting, or running, a business, it can be extremely daunting to “do the books”, and so many people put it off.
Why is it important to keep your books up-to-date?
It helps you keep track of customers who owe you money.
o Are you sure that everyone who should have paid you, has? If you don’t keep a list of the invoices you’ve sent out to your customers, and tick off the money they pay you as it comes in, it’s very easy to miss that a customer hasn’t paid you.
o Are customers taking early payment discount when they’re not entitled to it?
It means you can note how much you’re paying your suppliers.
o Has your business’ landlord put up the rent so high that you might need to increase your prices?
o Is the bank charging you too much for returned cheques, briefly going overdrawn, just for the privilege of having a business bank account with them?
o Could you take advantage of discounts by paying your suppliers earlier? If you pay your suppliers in reasonable time then it’s easier to keep a good relationship with them.
o If your records are in good shape, then this should mean your accountant charges you less for doing your year-end accounts and tax returns.
It helps you keep a record of cash going in and out of your bank account, and money you’re due to spend.
o Have you got enough in the bank to pay your staff on time?
o Can you afford to take some money out of the business for yourself? It’s no good taking money out if you’d have to put it back a week later to pay the VAT.
o Could you improve your relationships with your customers by offering them early payment or cash payment discounts? Does the business’s cashflow allow for this?
You are legally obliged to keep records for tax.
o If you’re VAT registered, then you have to file a Return four times a year, unless you’re on the annual accounting scheme. And Customs can charge extra money to businesses who file their Returns late. You need up-to-date records to prepare a Return.
o Every business has to pay tax of some kind –income tax if the business is a sole trade or a partnership, corporation tax if it’s a company. Isn’t it better to know as far in advance as possible, how much tax the business will have to pay, so you can make sure the cash is there to pay it?
But record-keeping doesn’t have to be difficult.
If you use the right kind of computerised software for your business, record-keeping can become a pleasure instead of a chore. No joke – honest. I’ve heard clients tell me they feel “liberated” when I’ve shown them how to keep their records using a nice simple piece of software.
It’s important to pick the right software for your business.
If you or your bookkeeper is happy with double-entry bookkeeping, your business is very busy with lots happening, and you want lots of reports to show your managers, then you might do well with Sage.
Alternatively, if the very idea of double-entry bookkeeping makes your hair stand on end with fright, and you have a small business that’s just you, the cat and a computer, then a simpler cash book system, like KashFlow, or More (if your accountant offers it), might suit you better.
Or if you trade on e-Bay or using a retail EPOS system and would like your record-keeping software to link up with that, or would like lots of other useful services such as phone answering, website design and web hosting in the same package, then you could try Winweb.
For further information, speak to your accountant. Alternatively, from 1st May I will be setting up my own accounts software consultancy business, and will be pleased to work with you and your accountant to help you choose the right kind of software.