Developing bookkeeping skills is one of the keys to running a business effectively. If you’re not a number cruncher at heart, the thought might be overwhelming. However, a basic understanding of bookkeeping can help you transform how you manage your finances and make your business perform better.

This guide will help you understand bookkeeping by looking at the following topics:

  • What bookkeeping is in small business accounting
  • Why bookkeeping is so important
  • What is involved in small business bookkeeping
  • Tips for how to get started with your bookkeeping
  • Enhance your bookkeeping with Countingup

What bookkeeping is in small business accounting

Bookkeeping is when you record your financial information like purchases and sales to make it easy to see how money enters and leaves your business. Making this a regular habit will enable you to understand whether you have enough money to pay your bills, taxes, mortgages and other expenses. Bookkeeping is an excellent habit to get into at the start of your business venture to avoid falling behind – saving yourself on hours of admin and stress when it comes to completing your tax return. 

Why bookkeeping is so important

Without knowledge of your finances, you won’t be able to run your business for very long. There are many elements to keep track of to make sure you pay suppliers and lenders correctly. You also need bookkeeping to make sure you have the necessary information to pay your taxes correctly.

Small businesses must pay a number of different taxes throughout the year, including Income Tax, Dividends Tax, Corporation Tax and more. You need bookkeeping to calculate how much you owe to HMRC.

In other words, bookkeeping helps you prepare for the financial year ahead and think about what your next moves should be to take your business forward. Maybe you want to expand your service offering or transition from being a sole trader to a limited company?

Anyone who is self-employed or runs a limited company needs to file a Self Assessment tax return every year. You use your Self Assessment to declare your earnings from your business operations and other income to HMRC. You also calculate how much you need to pay in National Insurance and Income Tax. 

To file your tax return efficiently, you need to keep your bookkeeping organised. The Countingup app has a built-in tax estimation tool that allows you to stay informed about your taxes at all times, so you have an idea of how much you need to set aside.

Other ways bookkeeping helps your business.

Aside from staying on top of your taxes, effective bookkeeping also helps you make more tax-efficient decisions regarding how much to pay yourself, what business structure is right for you (sole trader or limited company) and whether you should register for VAT. Find out how much you can pay yourself in dividends tax-free here.

Suppose you ever wanted to expand your business. In that case, you’d need to prove to investors, new partners and banks that you’re profitable (meaning the company makes more money than it spends). Bookkeeping can help you here since you’ll have all financial information ready and organised for these people and businesses to look at.

Finally, using accounting software to do your bookkeeping will help you with Making Tax Digital (or MTD), which the government introduced in April 2019. Making Tax Digital requires all VAT-registered companies to submit information about the VAT they pay and connects to HMRC using “MTD compatible” software. As MTD gets further rolled out, you’ll need to move all your accounting online. 

What is involved in small business bookkeeping

Bookkeeping is a crucial part of the accounting process for your business and involves tasks like:

Managing the general ledger is one of your main bookkeeping responsibilities. A general ledger is a document you use to record sale and expense receipts, keeping track of the amounts earned and spent. Ledgers vary in complexity depending on a business’ size and how you choose to prepare it. 

Company ledgers can be anything from a sheet of paper to a specialised bookkeeping and accounting software like Countingup. Using accounting software to track your financial data is often more efficient since it stores your data in the cloud, meaning you can access it from anywhere. The Countingup app allows you to receive updates about transactions, invoices paid, and cash flow on the go.

Tips for how to get started with bookkeeping

Below we’ve listed a few steps to help you carry out your bookkeeping effectively:

  • Open a business current account: Separating your personal and professional finances is key to keeping good records. Opening a business current account is a legal requirement for limited companies and has benefits for sole traders as well.
  • Track all your expenses: Make sure you log your transactions as they happen. Countingup has a built-in receipt capturing tool so you can record your transactions on the go.
  • Use specialist accounting software: Countingup caters to small businesses specifically, offering features like invoice automation, profit and loss statements, cash flow insights, and tax estimates.
  • Set money aside for taxes: Find out what taxes you need to pay and make sure you save enough money to pay what you owe. Coutningup’s tax estimates come in handy here.
  • Beware of any deadlines: Also, keep track of any deadlines you need to meet during a financial year.
  • Outsource to a professional accountant: If the bookkeeping becomes too much for you, hiring a professional accountant is a good move. Countingup allows your accountant to connect to your accurate bookkeeping data directly to manage your accounts without any delays.

If you want to learn more about the difference between bookkeeping and accounting, read our separate guide called Bookkeeping vs accounting: what’s the difference?.

Save time on bookkeeping with the Countingup app

Countingup is the business current account that comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. With instant invoicing, automatic expense categorisation and cash flow insights, you can confidently keep on top of your business finances everyday. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple and straightforward!

Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a selfie. Download the app here.

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