Many businesses spend hours on book-keeping but achieve little. Many other businesses “bury their heads in the sand” and simply don’t do anything at all!

There is a legal requirement for all businesses and the self employed to keep complete and accurate accounting records.

There is an excellent article on the ICPA website by Mark McLaughlin about the risks of having inadequate book-keeping:-

ICPA Website

The best way to do keep proper records is to use proper accounting software such as Quickbooks, FreeAgent, or Xero.

HMRC’s “Making Tax Digital” (MTD) plans continue to be introduced and latest plans are for MTD for income tax to be introduced to sole traders, partnerships and landlords in April 2023! From that date, book-keeping needs to be “digital” and there will be quarterly income tax returns to submit plus a year end return, so 5 returns instead of the current single self assessment return. Proper accounting software is the best way to deal with the record keeping requirements and the submissions to HMRC.

Improved bookkeeping can be achieved in the following ways.

• Reduce the number of transactions.
• Keep business and private transactions completely separate.
• Avoid cash transactions where possible.
• Properly administer petty cash
• Keep separate bank accounts to separate personal and business transactions.
• Use a separate credit card only for business transactions.
• Keep completely up to date

The fewer individual transactions you have, the fewer entries you will need to make. No – we’re not telling you to leave transactions out of your records! You need to reduce the number of payments you make. With fewer transactions, your bookkeeping time is reduced and there is far less chance of errors. This can be achieved very simply – make one payment to pay several bills from the same supplier, use fewer suppliers. Fewer, unnecessary transactions means your book-keeping will take less time!

Distinction Between Business And Private

Never treat the business and your private monies as the same. There must be a clear distinction between business and private transactions. Anything that is private must not be put through the business books. If you have expenses that are partly business and partly private, you are better paying them privately and letting your accountant know about them at the year end. By doing this, the volume of transactions through your business account are minimised. There is no legal requirement to keep detailed or accurate records of your private payments. Set-up a regular weekly or monthly standing order from your business account to your private account and then draw your spending money and pay your private bills from your private account!

Avoid Cash Transactions
Cash is notoriously difficult to keep track of. You may think you’ll remember that you’ve paid the window cleaner out of your till, but in reality, you’ll have forgotten by the end of the day when you cash up! Cash is now getting less and less common, which is good, as it means more business transactions will have the “audit trail” of appearing on a bank statement to help your book-keeping. If you have to handle cash, either in or out, you need to keep “bomb proof” records which show where it came from and what you spent it on or banked, so that you can do the book-keeping properly for it.

Bank Accounts
You should have a separate designated bank account for your business. Put all sales and business income into this account, and pay all business expenses out of this account. Avoid, at all costs, paying private monies into the business account or paying private expenses out of the business account. By doing this simple procedure, your accounting records will only contain business transactions – why waste time and effort writing your private transactions into the business records, simply to analyse them as private drawings?

Credit/Debit Cards
Paying for goods by card makes book-keeping easier as there is just one payment in your book-keeping, straight off the bank or credit card statement or download. Far easier than buying goods on credit unless you don’t have the funds to pay on order. Likewise, accepting card payments for sales of goods and services you sell also makes your book-keeping easier for the same reason, and you avoid having to deal with bad debts, chasing customers for payment, etc.

Sales Income
Try to avoid giving credit. If you really have to, make sure that you issue regular statements and chase debtors regularly. Start as you mean to go on – your customers will take advantage if they get the chance! Always ensure that an invoice is sent with the goods or as soon as the work is completed – it is always better to hand the invoice personally to the customer – they may even offer to pay!

Don’t throw it away. Keep all invoices, statements, delivery notes, even diaries and general correspondence, etc for as long as possible. You may not think you need them, but your accountant probably will, and the tax authorities certainly will in a tax enquiry! Many items have to be kept for six years by law, but it’s even better to keep things for longer than that and some documents should be kept indefinitely – seek your accountant’s advice before throwing anything away and make sure that you store them somewhere safe where they won’t get lost, damaged or stolen. In case of tax investigation, keeping everything will help your defence against unfounded or false allegations raised by the tax inspector.

If you don’t use “paper”, then make sure you have “bomb” proof electronic storage in place, either on cloud based servers or by at least two portable hard drives. If you don’t have proper backups of invoices, bank statements, etc., you may really struggle in 2-3 years’ time if you suffer a tax enquiry and discover your emails are no longer accessible or you’ve closed your bank account and can’t access your online banking to print off bank statements! Using proper accounting software such as Quickbooks, Freeagent or Xero is a good way of keeping scans of paperwork as you can upload the “paperwork” and attach it to the transaction in the accounting software, so it is then easy to recover and view if required.

If you are up to date, your accounting and book-keeping should take very little time. Time consuming problems arise when you ignore it for weeks – you then need a day or two to sort it out. Put a small amount of time aside every day to keep up to date with the paperwork and you won’t even miss the time spent! More time is wasted in continually looking for things, trying to sort things out, constantly looking back etc.!

Never pay round sums to your suppliers – if you cannot afford the full amount of the month end statement, just pay some of the bills, and pay the others later – this stops your accounts and your suppliers accounts getting in a mess!

Don’t ‘contra’ if you and your suppliers/customers owe money to each other. You should swap payments to keep your records straight and up to date. If, for example, you owed a supplier, say £10,000 who also owed you £12,000, if your supplier went bust, the receivers would still demand the £10,000 from you – you cannot set off the amount owed to you! A very costly mistake to many businesses!

With a bit of time and organisation, every business could save valuable time, improve its accounting records, reduce annual accountants bills and reduce the risk of problems with the tax authorities.

If you don’t have the time or inclination to do your own bookkeeping, then get someone else to do it for you. You can’t abdicate your bookkeeping responsibilities, but you can certainly delegate it to someone leaving you with more time to enjoy or grow your business.

Many accountants offer book-keeping services to their clients, which can be surprisingly cost effective to save time for the client, but also usually reduces the year end accountancy fees for accounts and tax return preparation – that’s because the accountant needs to spend less time “checking” the book-keeping at the year end if they’ve done the book-keeping themselves throughout the year!

Useful Links:

Quickbooks: What is bookkeeping? A guide to bookkeeping

Contact us for more information about I can help you with your bookkeeping or you may like to read the excellent bookkeeping for dummies book to learn about the basics.