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Bookkeeping Essential Tips

Date Posted: 21 Apr 2014

I am a bookkeeper and I provide bookkeeping to those who have neither the skill, will nor time to do their own books.

As start-ups most businesses have at least the time and the will even if the skill is lacking and therefore quite rightly choose to initially to do their own books.  Over the next ten minutes I aim to give some pointers and essential tips so that until such time as the will or skill or time disappear due to growth the books that are being kept are at least of use in the interim.

Top Tip 1.

Don't over complicate.

Its your business and your money therefore you can do it your way. A small sole trader is under no legal obligation to produce a full set of accounts. The only need is to record your income and expenditure so that you can advise HMRC of any profits or losses made. Many start-ups grow from hobbies that become a business and whilst in these fledgling states paying for a full set of accounts is often an unnecessary expense.

Choose a system that is right for you. If you are a traditionalist and like to see things written in a book there is no harm in doing so. If you are computer literate you could set up a simple excel spreadsheet. If you are into figures and dont mind a bit of cost you could buy an off the shelf bookkeeping package. Sage is the most widely used in the UK and a simple cloud based solution starts from 5 per month. Quickbooks which is the world leader charge 7.20 per month. Both offer trial periods so that you can test out the software and see if its for you.

Top Tip 2.

You got to have a system.

Whatever system you choose you will start by recording your expenses or income into categories of similar type. If you have one product or service to sell you only need one income account for example I could record everything under bookkeeping. If you have a few different types of income you may wish to separate them into separate categories so that you can monitor sales i.e. I could do bookkeeping, payroll, vat returns, year ends. If you have lots of different product lines you could break them down further however I would refer you to tip one dont over complicate and question in these early stages the benefit of knowing the exact number of invoices input or journal entries processed when bookkeeping will  suffice.

Likewise for expenditure. If you spend lots of money on one thing then it may warrant having its own category Again in my example software licences. However if its only small amounts spent infrequently then a category for miscellaneous or a more general heading such as office expense will do to record how many paperclips I have bought.

Top Tip 3

Be Consistent.

At this stage Im not over worried into which category you have placed an expense or income however I will insists that you place all similar items to the same place. Dont start recording your paperclip purchases in Office Expenses then later enter them in miscellaneous. Whatever you have decided to do, continue to do it. That way whatever information you get out at the other end of the bean counter will remain consistent. If you have miss-posted an item type consistently it is a simple matter for someone to reposition it within the final scheme of things as opposed to trawling back through the input to see what went where.

Top Tip 4

Make yourself a checklist.

We are all busy people. Interruptions are frequent when you are the only bugger in the office to answer the phone, make the tea, and let the cat out, do some work. You want to keep track of your finances so that you can recall a figure many moons ago to find out exactly what went wrong. Be systematic in your approach. Make a list of the key takes that you do on a monthly or weekly basis and tick them off as you do them. If you need to leave your bookkeeping for a few hours, days, weeks then knowing where you got to will help so that you dont duplicate entries or not put them in at all. A checklist will help your activities in a methodical and orderly manner.

Top tip 5

Persevere.

Each of us has a low time in the day when any task is like running through mud and a sweetspot when jobs just get done. Decide on when it is best for you to do your books. Using your most productive time may not be the best solution for a new business which needs to be maximising returns but also doing the books in the low time may mean that you just cant be arsed and leave them. Whatever time suits you try and make it become a habit so that you do your books regularly so that you avoid a nasty pile that you just cant face at any time of the day. (Note the record I have found for bookkeeping backlog is 5 years worth of figures with all the fines and penalties that HMRC levy to go with it.  Bite size regular chunks will soon see a routine/habit form.

Top tip 6

Use the information.

If you have put together a reliable set of books you should be able to read trends from them. Total up sales for the week, the month, the quarter and compare them against previous similar periods. If you have remembered tip 3 you should eventually see some patterns emerging. Hopefully sales are growing. Hopefully the amount in your expenses is controlled. If not look at the variances and try and understand why they occur. Have costs gone up? Have you gained or lost a customer? What can you do about these things?

Top Tip 7

Balance your books.

I havent discussed double entry bookkeeping at all but in essence you will be doing a very rudimental version of it or the computerised software you have chosen is doing it behind the scenes.  Keeping your books in balance needs you to understand 3 basic terms.  Your business assets will equal the amount you put in (your capital) less your liabilities. For sake of ease lets say you pay all your bills in cash as you go and your customers do the same. The amount of assets (stock, equipment[LC1] , cash in hand should equal the amount of capital you put less any money you owe (nil in this example). If you put in 100 into the business to start it but have 100 in stock, 100 in equipment & 100 in cash in hand the entry to balance the books would be retained profit of 200 which is added alongside the capital.  Knowing what you started with and balancing it against the count of your stock, equipment cash (or bank account) you can work out profit. Counting your cash or checking your bank account is correct is doing a reconciliation. I have excluded any input regarding depreciation here for simplicity as this is disallowed by HMRC in any event with Annual Capital Allowances exchanged if relevant.

Top Tip 8

Can I get away with it?

If an expense was necessary and wholly & exclusively used by the business in its income generating activities. If you have incurred a genuine cost in operating your business then the cost can be offset against the income it has generated. So where to tread carefully. Entertaining customers & suppliers whilst seen as a legitimate expense of business cant pass the wholly and exclusively test as it can be argued that you could have met in the office rather than at the ritz, golf course or rugby match.  Work clothes normally cant normally be claimed unless needed for work safety of the job Some expenses are capital items in disguise so may need to be shifted when a tax return is done such as legal fees in buying an asset as the would be capital expenditure not an expense. I would tend to be cautious. Just because topless dancer Chesty Love managed to get her boob job written off as tax deductible in the USA doesnt mean it will happen here.

Tip 9

New Years resolutions.

At the end of your financial year make sure you actually draw a line under it and move on. The expression draw a line under it comes from manual bookkeeping ledger days and means just that. At the end of the year or reporting period you simply draw a line under it.  I could get into accrued and prepaid expenses but I havent got time however just to say once you have closed your books and reported them as such dont fiddle with them anymore. Start a new book, new column and start again with your income and expenses. If youre using computerised systems they should do it for you and all you need to do is be careful with the date. If you have a bill that has come in late from the phone company then chances are it will come in again late next year so things should balance out. Likewise if you paid for insurance for a 12 month period during the course of 2 years it should even out.  Historically the HMRC only acknowledge accrual accounting basis but they have loosened their stance for smaller businesses recently.

Tip 10

Use a qualified bookkeeper before it overpowers you.

If the business grows and you start to feel it getting out of control bring in an expert. If you have too much to do and too little time bring in an expert. If there are just too many things to consider now that the complexity of the business has grown bring in an expert. Each of my clients has different needs and so I tailor my time to what suits them. Taking away the fear, releasing the time and adding value at each interaction.

Author

Lee Chapman Lee Chapman Bookkeeping Services
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