For small businesses, bookkeeping can be a bit of a headache. And getting it wrong can lead to some bigger problems down the road. 

These problems are easily avoidable with good bookkeeping practices. So, let’s take a look at some of those practices that can help keep your accounts nice and healthy:

  1. Prepare for taxes
  2. Open a business account
  3. Consider accounting software
  4. Monitor cash flow
  5. Reviewing your books
  6. Invoice well
  7. Hire a professional accountant

But first, just to make sure you’re in the right place. Let’s define a small business. 

What is classed as a small business?

According to HMRC, a business is classed as small if:

  • It has an annual turnover of £10.2 million or less.
  • It has recorded £5.1 million or less on the balance sheet.
  • It has 50 employees or less.

Alongside small businesses, we’ll also be including bookkeeping tips for micro-entities and sole traders. A sole trader is, as the name suggests, a person who is the sole owner of a business. A business is classed as a micro-entity if:

  • It has an annual turnover of £632,000 or less.
  • It has recorded £316,000 or less on its balance sheet.
  • It has 10 employees or less.

The size of your business makes a big difference to your bookkeeping practices; namely taxes. If you want more help classifying the size of your business, check out the HMRC website

1) Prepare for taxes

Owning a small business means taking care of your own income tax. As this only comes round once per year, it can be easy to put to the back of your mind, only to be scrambling for financial records, come April, and getting hit with a huge unexpected tax bill. 

Keep accurate records of all your income. This way you’ll know when you’ve earned enough to start paying income tax. This is called your taxable income. This amount is different for small businesses and sole traders, so make sure you know when you’re entering taxable income territory. You can check it out on the HMRC website

Secondly, keep track of your business expenses, as there are loads of things that are tax-deductible for small businesses, even if you’re working from home. 

2) Open a business account

Keeping business and personal money separate is always a good practice. 

For sole traders and small businesses, consider setting up a business account, even when it’s not mandatory. This will help give you a more complete picture of your business’ finances, separate from your own. 

Even if you’re a limited company, required to have a business account, try to avoid using it for personal expenses. If you do, make sure you repay it. 

Aside from having a clear picture of your finances, a business account like Countingup can offer you loads of benefits when it comes to financial bookkeeping. 

3) Consider accounting software

People make mistakes a lot more than machines. especially when it comes to organisation and maths. 

Consider downloading accounting software, like the Countingup business app to make every aspect of your bookkeeping just that little bit smoother. 

It’ll keep a record of all your income and expenses, giving you useful insights into profits and loss, and showing you long-term projections. 

On top of the financial management features management, Countingup is also MTD (Making Tax Digital) compatible, meaning you can pay your VAT via the app. 

4) Credit control and monitor your cash flow

Credit control is just a fancy term for ensuring healthy cash flow within your business. And this essentially boils down to deadlines. 

Practice strict deadlines when it comes to making and receiving payments. This will give you a more accurate picture of your finances.

If you do decide to take delayed payments, consider asking for at least some of the money, upfront, and introduce penalties for repeat offenders. If you must make delayed payments, at least make a clear note of it, so your books don’t display money that you technically don’t have. 

Once you’ve got a handle on your cash flow, you can create profit and loss statements to see how your income and expenses affect your long term profits, allowing you to make more informed financial decisions.   

5) Invoicing

Invoicing is a fairly tedious, but crucial, part of small business bookkeeping – after all, that’s how you’re going to get paid and record your income for expenses. 

Managing invoices can be a pain, but a proper system is going to make sure you get paid on time, for the right amount. After invoices have been paid, you need to keep them safe and organised to refer back to later. 

We’re biased, but one of the best ways to create professional invoices quickly and easily, and send them to clients, is from the Countingup app. Try it out for free!

6) Reviewing your books

One of the main advantages of good bookkeeping is that it allows you to build an effective accounting strategy.

This might sound difficult, but it can be as simple as sitting down every month and looking at your books. See where your biggest expenses are, and what you can do to mitigate them. Conversely, look at where most of the income is coming from. and prioritise cost-effective revenue streams.

Every penny counts, especially for small businesses and sole traders where money might be a little tight. 

7) Hire a professional accountant

Finally, sometimes the best way to look after the books is by getting somebody else to do it. If you can hire a full-time accountant, that’s great. 

However, for smaller businesses with less money to throw around, hiring an accountant only when you need it can be cost-effective. You’ll still have to keep accurate records of all your income and expenses, but a professional accountant can give you great advice and insights regarding everything else we’ve mentioned above. 

In particular, when it comes to tax season, an accountant can prepare all your accounts much faster and more accurately than you can. It’s a short-term expense, but when you take into account the time it might take you to do it on your own, plus the risk of costly mistakes, that short-term expense is entirely worth it. 

How the Countingup app can make bookkeeping easier

The Countingup business current account comes with free accounting software that automates a lot of the tedious parts of financial bookkeeping.

You’ll have real-time cash flow insights with no data lag, ensuring you have the most accurate information possible. You can then generate profit and loss statements, showing your projected profits (or losses) based on your financial activity.

With these features and many more, Countingup business current account has earned its “Excellent” Trustpilot rating by helping over 40,000 small business owners improve their bookkeeping. 

Start your three-month free trial today and find out why Countingup is loved by business owners like these:

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