Tips to Simplify Accounting
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Managing your accounts when running a small business can be a challenge. Keeping on top of the basics, such as invoicing and cash flow, can be time-consuming, never mind trying to gain insight from your figures to help your business develop. The good news, however, is that by creating a few systems and structures and investing in the right tools, it is possible to simplify your accounting.
How to simplify accounting for small businesses
Maintain a separate business bank account
While you must have a separate business bank account if you've set up your business as a limited company, it's advisable to do the same even if you're a sole trader or freelancer. Keeping your business income separate from your personal finances has several advantages, including the fact that it'll be easier to do your self-assessment tax return if you have all your business income and outcome by itself in one place – and if HMRC feels the need to look into your finances further, they won't need to look into your personal finances if the accounts are separate. It's also worth noting that having a business bank account will help you build your business credit rating, so if you want to apply for a loan or credit card, this will help.
Record your expenses
Keeping track of the money leaving your business is essential, and while you may think doing this on an ad hoc basis is sufficient, establishing a system to record your business expenses will undoubtedly save you time in the long run and ensure you can find information easily whenever you need it. This could be as simple as recording the information in a spreadsheet, but online accounting software can also be a huge help here, especially if you can link your business bank account to help you record information accurately. Paying expenses monthly rather than as incurred will also make things more efficient.
Adopt an online invoicing system
Effectively managing the money coming into your business is also vital; being slow to invoice or failing to chase up unpaid invoices will negatively impact your business and challenge your cash flow. Again, invoicing can be done manually, but accounting software will take the pain out of invoice management. With software such as AccountsPortal, it's easy to design personalised invoice templates so you can create professional invoices that can be sent automatically for the ultimate efficiency. Tracking payments is also simplified with clear dashboards, so you'll never let an unpaid invoice slip through the net.
Understand your turnover, profit and cash flow
Once these basics are in place, it's helpful to analyse your key figures to understand your company's financial situation. Turnover, profit and cash flow are a great place to start, as these will give you a good overview of your business's health and help you plan for the future.
It's important to keep an eye on turnover – total net sales over a given period – because if you reach the VAT threshold of £85,000 in a 12-month rolling period, you must register for VAT.
When looking at profit, you could also consider your profit margin – how much you make compared to costs. This will show you which clients are most profitable and highlight if any fees seem higher than expected, in which case you may want to renegotiate or shop around.
Finally, managing your cash flow will help ensure more money is coming into the business than going out. It will also highlight if you're building cash reserves, in which case you may want to consider investing in your business.
Keep your business finances organised
Of course, it's easy to start with good intentions and plan to always be on top of your finances. The reality, however, is that they can be put on the back burner until you start approaching HMRC reporting deadlines, at which point panic can set in. Therefore, the biggest tip for simplifying small business accounting is to be organised. Send and chase your invoices in a timely manner, record your expenses as they happen, pay yourself each month and look at the numbers regularly. Also, remember that if you struggle to keep up with things, there is help out there. An accountant specialising in small businesses or a bookkeeper who can keep you on track can be huge assets in making sure you focus on what's necessary, don't miss any key reporting dates and maintain an effective accounting system.
Choose the right accounting software
The right accounting software can also make this less onerous, offering a quick and easy way to check key figures, send and chase invoices, make payments and coordinate your tax affairs wherever you may be. Look for cloud accounting software that can be accessed anywhere and used by you and your accountant at the same time if needed. Other key features that will help to simplify your accounting include the ability to handle all VAT scenarios, bank feeds that connect directly to your bank account so that your business transactions are automatically synced, real-time reporting so you have access to accurate, up-to-date financial information whenever you need it, and free support just in case. It's also important that whatever software you choose, it's compatible with HMRC's Making Tax Digital platform.