How do you handle the financial transactions of your business? Do you keep your focus on your records consistently throughout the year? Staying organised and having up-to-date and accurate financial records is essential in helping you to monitor your business’s progress and spot issues early on.
If you have not yet embraced digital accounting software, then now is the time to have a look at the options available to you, because they have many benefits over traditional systems and are revolutionising the way accounting is done.
Here are our top 10 tips for improving your business’s accounting practices and the benefits that each can bring to your business:
1. Never allow clients to delay paying
It may on the surface feel like a good idea to have lots of clients who you allow to buy now, and pay later on favourable terms. While this may attract clients on the one hand, and you may feel you can trust them, it is very risky for your cash flow. Sometimes, all it takes is one or two late payments and your whole business can come grinding to a halt as you become unable to buy inventory, pay your creditors or your staff.
It’s best to have payment terms that all your clients know you they have to strictly adhere to, and when payments are looking like they’re going to be late, chase up with a phone call or email reminder. Accounting software can help you monitor this and give you alerts when customers are late paying an invoice.
2. Account your expenses daily
Do you write down how much you have spent in your business daily? Don’t let these kind of jobs build up. You are liable to forget things and it’s important not to ignore or forget even the smallest expenses if you want an accurate picture of your business’s finances.
Accounting your expenses daily also helps you to spend cautiously and keep an eye on areas of overspending that can quickly add up to cause a problem. It enables you to create a budget for future use and find cheaper alternatives to big expenditure too.
3. Always have critical details to hand
Don’t waste time searching for crucial bits of financial information every time you need them. Ensure you have them close at hand. You will often need your National Insurance number for tax purposes, so it’s best to memorise that one if you can. You will also regularly be asked for your UTR. UTR stands for your Unique Taxpayer Reference. It’s a ten digit number that HMRC issues to you when you sign up your business for tax assessment. You will need to keep these and countless other details in a safe and easily accessible place, and crucially, not forget where that place is!
4. Keep personal finances and business finances separate
Do you keep your business and personal finances completely separate? If you use one bank account for both business and personal use, you may have a lot of work when filing returns at the end of the year, and you open yourself up to mistakes in your accounting, so it’s best practice not to do it.
5. Always keep accurate financial records
Accurate and up-to-date financial records are important for a whole host of reasons. Firstly, they are essential for filing your income tax and VAT returns. Without accurate records you risk underpaying or overpaying your taxes. Secondly, they are important for applying for loans and credit. All lenders will want to see your latest, mistake-free financial records. Thirdly, having accurate financial records allows you to have all the data at hand that you need to be able to make important decisions about the running of your business.
It is therefore very important to record your income accurately. You can record your business transactions using spreadsheets, entering the figures in an accounting ledger manually, or by having a cloud-based accounting system that allows you to enter everything simply and easily and which can generate data for you, connect to your other digital finance tools and accounts, and ensures you comply with the UK government Making Tax Digital legislation.
6. Know how invoices differ from receipts
As you track your finances, remember to differentiate between an invoice and a receipt. An invoice is a bill that you send to your clients with information about how much they owe you. A receipt, on the other hand, is evidence of a transaction that has already occurred. It is what you give to your customers after they have bought something from you. Always separate receipts from invoices.
8. Set tax money aside
You know you’re going to have to pay some amount of tax at the end of the year, therefore it’s important to stay on top of your records so that you know exactly how much you’re going to be asked to pay, and the actual figure doesn’t come as a nasty surprise for you when it’s too late to do anything about it. Putting money aside for payment of taxes is absolutely crucial if you are to avoid ending up in big financial trouble at the end of the year.
8. Hire a bookkeeper
Do these things sound too much for you? If you are a busy person, you may feel overwhelmed by everything you’re expected to to handle in your business and stretched to your limit with a seemingly endless list of important jobs that your business requires of you. If that’s the case, why not outsource some of these tasks to a bookkeeper or accountant?
While you may be trying all you can to cut costs, sometimes saving time by outsourcing a job to a professional will help you perform better in the long run. Plus, mistakes when it comes to accounting and taxes can be costly in more ways than one, so it pays not to take a risk with these things.
9. Enrol on a business related course
Do you have time to study and update or upgrade your skills? Undertaking a business or finance course can really give you the knowledge and understanding to take your business to the next level, meaning education is one of the best uses of your business finances.
Well-honed accounting skills can help you grow your business and keep you ahead of the game when it comes to the all important cash flow and digital record keeping obligations you have as a business owner. It’s therefore well worth your time setting up systems that allow you to keep your accounting accurate and up-to-date.