Learning to manage your books can be daunting when starting a new business and navigating the freelance world.
Over time, you might choose to hire an accountant, but here’s an overview of what bookkeeping is and our tips for getting it right.
Small Business Accounting – Everything You Need To Know
What is bookkeeping?
Accounting is an important part of financing a business, but it is often one of the most difficult parts of running your own business.
You probably didn’t choose to become self-employed because you enjoy viewing spreadsheets and recording your expenses. You’re happiest when you do what you do best, whether it’s running your craft business, selling clothes online, or providing top notch service to your customers.
What is an accountant – and what does he do?
Bookkeepers are required to keep accurate records of business costs and expenses. Not only does this help to understand the profitability of a business, but it is necessary when it comes to filing your tax return as part of the self-assessment process every year.
Bookkeeping also involves processing invoices, reviewing bank statements, finding unpaid invoices.
What is the difference between bookkeeping and accounting?
Accounting and bookkeeping are two terms that are often confused in corporate finance because they can overlap.
Accounting is the set of day-to-day administrative tasks that keep track of the money your business receives and the money it spends.
Accounting is a high profile form of business finance because it examines the financial health of a business through reports and forecasts.
Accounting tasks typically include financial auditing, analysis and reporting, such as creating a balance sheet to account for assets and liabilities or forecasting cash flows. These reports provide a more analytical view of your business and can be useful when it comes to making important business decisions.
How to do the accounting
Don’t know where to start to balance your books? Here are our top five tips.
1. Choose an accounting method
First, you will need to choose an accounting method for your business: cash accounting or traditional accounting. What’s best for your business will depend on how you’ve set it up, so it’s best to speak to an accountant if you’re unsure.
2. Create a system and organize everything
The size of your business will likely determine how you want to organize your financial administration. There are many free and paid accounting software options out there, but you might be happy with a simple Excel spreadsheet.
The main thing is that everything is organized and that you file your bills, bank statements and receipts in order.
3. Know how long to keep your financial records
You must keep your business records for at least five years after the self-assessment deadline. Public limited companies must keep accounting records for at least six years. Our guide to record keeping has more details on this.
4. Recover tax on eligible expenses
You can subtract part of your freelance expenses from your turnover when you calculate the amount of tax you will have to pay each year. Make sure you’re not one of the small businesses losing thousands of dollars on unclaimed business expenses, whether it’s because of lost receipts or not understanding what you can and can’t claim.
5. Budget for your tax account
It can be difficult to know how much tax you will owe HMRC by the time the self-assessment deadline arrives on January 31, but it is important that you have set aside enough money to foot the bill.
If this is your first year of activity, be aware that you will have to pay the tax bill for that year, and then, on the same day, also pay the first installment of the bill for the following year – this is called a deposit.
Download our free budget template for your business.
Accounting courses for small business owners
If you are having difficulty with accounting, it is worth considering whether you want to hire an accountant and free up your time to run your business.
Alternatively, you can explore basic accounting qualifications like this at City & Guilds to expand your knowledge.
Free Accounting Courses (UK)
If you are looking to improve your self-confidence and develop your accounting skills, we have listed some online accounting courses that you can try for free. It’s also worth seeing if you can access any free resources with your accounting software (if you use one), as some include training and support.
OpenLearn is a free learning platform from the Open University and offers an introduction to bookkeeping and bookkeeping for free.
FutureLearn offers a range of free accounting courses that you can take at your own pace from anywhere in the world. Here are a few related to accounting:
Finally, it goes without saying that YouTube is a fantastic way to teach you something new – and accounting is no different. Navigate and tell us how you are doing.
Do you have unanswered questions about accounting? Let us know in the comments.
Photograph 1: Fizkes / stock.adobe.com