What is bookkeeping and why do you need it?

It’s essential that a small business utilises simple bookkeeping measures. Without using clear and accurate basic bookkeeping, it becomes difficult to stay on top of your business’s finances. No matter the size of your business, it’s important that you keep your books up-to-date and accurate. This is relatively simple if you are self-employed or a freelancer, but somewhat more complicated if you are employing other people. If you find it too difficult to keep on top of your books, it’s recommended that you employ an accountant. This can be helpful if you find managing your own finances too time-consuming, but it’s important to note that this is not essential. If you are a smaller business and don’t have the money to hire a professional, then it’s perfectly okay to do it yourself.
However, you do need to make sure that your accounts are correct – failure to keep accurate and easy-to-read balance sheets can result in you having difficulty when reporting your income to HMRC. This can result in you paying too much tax, or can even lead you to face a fine if you don’t pay enough.

What should you use for your business bookkeeping?

As mentioned, employing a bookkeeper or utilising bookkeeping software can be helpful if you are a business owner with employees, or have a complicated business framework. However, if you’re a freelancer or don’t want to add to your expenses, you can easily keep on top of your books yourself. There are many bookkeeping spreadsheets available on the internet, so you can take your pick. You can also create your own spreadsheet on a programme like Excel – the most important thing is that it is clear and readable.

What should a simple bookkeeping template consider?

Without any experience in accounting, the prospect of doing the bookkeeping for your business yourself can be intimidating. However, learning the basics of bookkeeping is not difficult and will usually be enough for any small business or a freelancer. To get you started, here are five important bookkeeping basics you should follow if you’ve decided to go self-employed or want to start your own business:

• Open a business account: A business account is essential for tracking the expenses and income from your business and makes it simple to get a good overview of your finances. Most major bank accounts offer a business account, so shop around and see what bank offers the best incentives and rates.
• Track all expenses: Make sure you are on top of anything and everything you are spending. You can either do this by keeping receipts, or by keeping your digital banking tidy with descriptions of each invoice. This is particularly important for a freelancer, as it’s easy to mix up what is business and personal spending. A train ticket to a clients city is a business expense, a new coat likely isn’t and the former can spare you some VAT while the latter will not.
• Pick a bookkeeping system: The majority of businesses use a double-entry bookkeeping system. The double-entry system of accounting means that all business transactions involve two accounts (or more). For instance, if your company borrows money from its bank, the companies cash account will increase but it’s liability account will also increase, with more loans payable. If you can spare the expense, it’s worth using a cloud-based online accounting software programme to speed up and simplify this process.
• Organise a payroll system: If you have multiple employees, it’s important to set up a payroll system that will track how much your employees earn and pay them for you. If you are a freelancer or self-employed, it’s worthwhile paying yourself a salary so you’re not taking too much money out of your business.
• Budget for tax: It’s critical that you factor tax into your budget. If you make over £12,500 (from April 2019) then you will have to pay income tax, along with National Insurance. You can use this tool to easily budget how much you need to set aside for payment of tax. It’s important to note that some business expenses will be free from VAT, so by keeping your bookkeeping up-to-date you can grant yourself some tax-relief.

These five steps are critical for any freelancer or prospective business owner. Of course, if you run a larger and more complicated business, or you employ than a few members of staff, it’s recommended that you get advice from a professional on how to manage your books. However, for most small businesses, this is a luxury and not a necessity.

Can you keep a physical cashbook instead of a computer template?

Keeping a written cashbook is permittable but isn’t recommended. Managing your books on a computer is clearer and easier to read, more secure, and quicker to edit. By balancing the books on a computer you have the added benefit of backing up your spreadsheet on a Cloud account, so you don’t have to worry about losing or damaging your records, like you do with a physical cashbook. It’s also worth noting that you don’t need to keep any paper copies of receipts or invoices. These are not required in the UK, and you are free to keep your tax records however you want – including electronically or as part of bookkeeping software protocols. This helps you reduce clutter at your workspace, as you don’t need to worry about piles of paper receipts, invoices, and cashbooks flooding the office.