A lot of people don’t think much about the bookkeeping and accounting side of running a business. Frankly, it’s not the most interesting thing to do, and it’s probably not why you went into business in the first place. That said, it’s definitely worth thinking about if you want your business to succeed and grow over the years.
Running a plumbing business can be an incredibly profitable career choice. One of the best ways to maintain those profits and keep your overall finances looking healthy is with consistent and accurate bookkeeping practices.
But if you’re not a trained accountant, don’t worry. Just follow these straightforward bookkeeping tips for a small plumbing business:
- Choose an accounting method
- Get familiar with tax rules and brackets
- Open a business account
- Prepare for your tax return
- Optimise your invoicing
- Hire a professional
- Use accounting software
Choose an accounting method
Bookkeeping is essential for small businesses, but it’s up to you to decide which accounting method you’re going to use. For example, you can choose cash basis accounting or traditional accounting.
Cash basis accounting
Cash basis is a much simpler method. You only need to record income and expenses after the actual money has moved.
Under UK law, you can only do cash basis accounting if you’re a self-employed sole trader or partner running a small business with less than £150,000 turnover a year.
If you’re running more than one business, you need to use cash basis accounting for all of them. The combined turnover from all the businesses still has to be less than £150,000 a year.
On the other hand, traditional accounting is a bit more complicated, but it has its benefits. When using this method, you need to record:
- Money you’re owed but haven’t received yet.
- Expenses you haven’t paid yet.
- The value of your stock.
- The value of any work you’re currently doing.
- How much you’ve invested in the business.
- End-of-year bank balances.
- Money you’ve taken for personal use.
While it’s more complicated, traditional accounting gives a fuller picture of your overall financial health. Having more detailed records with traditional accounting also makes it easier to apply for additional funding.
Familiarise yourself with tax rules and brackets
As a self-employed plumber, you’ll need to submit a self-assessment tax return, so getting familiar with each year’s tax brackets and deadlines is a good idea. For example, “Personal Allowance” for income tax is currently £12,570, but last year it was £12,500.
If you want to avoid penalties, you should also be aware of the deadlines for filing your return. Check the HMRC website regularly to stay on top of the latest information.
Staying informed is the best way to make sure you’re putting aside enough every month to account for your income taxes so that you won’t be caught out at the end of the year.
Keep your business finances separate
By law, Limited companies need to have a separate current account for their business, but it’s also a good idea for sole traders because it makes financial management much easier.
A separate bank account for your plumbing business will help you keep track of any income and expenses that are business-related. Otherwise, your personal finances will be in the mix, making things that bit more difficult when it’s time to record your transactions for self-assessment.
Aside from the practical side of things, a business account will also make your plumbing business appear more professional. People are careful with their money, and many clients might refuse to pay into a personal account.
Optimise your invoicing process
Invoicing will be an essential part of your bookkeeping when running your plumbing business. In theory, it’s fairly simple. Send your clients an invoice so they can pay you for your work. You can check out our invoice template to help you get started.
That said, there are some general rules to live by if you want to optimise your invoicing and get paid on time;
- Send your invoices out as soon as possible. The faster you send them, the quicker you can get paid.
- Pay attention to how your clients respond. If one client keeps paying their bills late, you could enforce a late payment fee.
- Set clear payment terms that outline when you expect to get paid and what happens if a client doesn’t pay on time.
- Chase up late payments as soon as possible.
Consider hiring a professional bookkeeper
If you’re not confident with bookkeeping, or you just don’t have time, it’s probably a good idea to hire an accountant or bookkeeper for your plumbing business.
The main difference between a bookkeeper and an accountant is the level of involvement they have with your financial decisions and strategy.
A bookkeeper will oversee your financial data, perform basic tasks like record keeping, financial reporting, and expense tracking.
An accountant does everything a bookkeeper does, but they also help with the general strategy. They use your financial data to offer advice and guidance to help you make the best financial decisions for your business.
Use the right accounting software
Finally, one of the best ways to improve your bookkeeping is to use accounting software. There are a lot of options on the market, so you need to find the right one for your plumbing business.
Countingup, for example, is tailored toward the needs of a one-person business, making it perfect for sole traders. Using Countingup will give you a business current account and accounting software rolled into one app so you can manage all your finances in one place.
Key Countingup features include:
- Invoicing on the go: create and send unlimited customised invoices to clients straight from your phone.
- Receipt capture tool: simply photograph the receipts with your phone to scan them into the system.
- Automatic expense categorisation: Countingup automatically sorts your expenses into HMRC-approved categories, making it easy to stay organised.
- Tax estimates: the app generates monthly tax estimates, so you know exactly how much to set aside.
- Cash flow insights: you can access accurate, and up to date cash flow reports, so you know exactly how much money you have at any time.
- Accountant access: if you work with an accountant, you can give them instant access to your financial data by emailing them an invite. Simple, seamless and safe!
Save yourself hours of accounting admin so you can focus on growing your business. Sign up for a Countingup business account today for a three-month free trial.