Best-practice accounting tips for small business owners
The coronavirus crisis has devastated businesses across the UK. More than a quarter of small businesses are expected to downsize or close this year. It's more important than ever that as a small business owner, you control your finances effectively and give your business the best chance of survival.
Keeping your accounts in order may seem like a chore, but it helps you to plan ahead and manage your business. Following the tips in this article will help you move towards your long-term goals, increase profits and set your business up for success.
Separate personal and business accounts
Having separate business and personal bank accounts makes it simpler to track your income and expenses and makes record keeping easier. Treat your business as a separate unit from the start even if you’re using your own money to finance it.
Set up a business account and use it for all business transactions, including paying yourself. Get a business credit card for expenses and open a business savings account. Use it to build a fund for future growth or to cover unexpected bills or situations.
Use accounting software
Accounting software makes your life easier. It also acts as a secure centralised hub for your business records. You can track and categorise your income and expenses, create and send invoices and generate financial reports.
You can buy inexpensive accounting software off the shelf. However, the Government has launched ‘Making Tax Digital’, a scheme that makes it easier for you to pay your taxes. You’ll need compatible software to sign up to the scheme, so check the guidance on which software you can use, or speak to your accountant. They may have their own software you can use for free as part of their accounting services.
Keep track of your expenses
As a small business owner, you need to keep accurate records of expenses and receipts so you can offset them against the tax you owe. Here's where it's handy to have a business credit card. You can track your business expenditure easily and feed the information directly into your accounts by linking it to your accounting software.
The days of going through a box of muddled receipts every few months to update your records are behind us. Lots of companies now issue electronic receipts which you can easily upload to your accounting or bookkeeping software. Get into the practice of reviewing and inputting your expenses regularly as it’ll make it easy to reconcile your accounts.
Monitor money owed to you
Your business won’t be able to operate if there’s no money coming in. Therefore, it’s sensible to have a system in place to ensure you get paid on time. An automated invoice system can generate automatic reminders for outstanding invoices making it easier to chase payments due. Having an online payment option will increase the chances of fast payment. Or you could offer a discount for paying early, but remember to factor this into your pricing structure.
Set payment terms
Make sure you include payment terms on your invoices, to maximise the chances of you getting paid on time. Examples of payment terms are:
- Due date
- Accepted forms of payment
- Late payment charges
- Currency the invoice should be paid in (if you have international customers)
Where you can, discuss payment terms upfront, so customers are clear when they need to pay. Send invoices as soon as you can (use your accounting software to do it automatically) and make sure they are easy to understand.
Stay organised
Save yourself time and unnecessary stress by ensuring your paperwork and accounts are always in order. If you leave it to just before you submit your tax returns, you could find yourself missing a deadline and facing a penalty from HMRC. Or you may pay more tax than you need to because you miss expenses that you could claim back.
Swap paper systems for an electronic one to help you keep full and accurate records. Make sure you understand your accounting software so you can make best use of its features. Your system can provide you with a wealth of information you can use to make meaningful business decisions.
Hire an accountant
You may think you can’t afford to hire an accountant to look after your business finances, but this could be a false economy. Reasonably priced online accounting packages are plentiful these days, and many come with additional advisory services which are invaluable when developing your business. You may have experience in your business sector, but it's unlikely you have the in-depth knowledge and financial and business skills of an accountant.
A good accountant will give you guidance and advice on how to run your business as well as dealing with your finances. For example, business planning, company formations and what your finance options are.
Effective business finance plays a critical role in the success and future growth of your business. Focus on the financial health of your business in the early days and you're sure to be around for many years to come.