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Bookkeeping for small business made simple

Finding your feet with the marketing, operations, and finance for your new business can be stressful and time-consuming. In this post, we'll show you how to nail the bookkeeping for your small business in just a few simple steps, helping to avoid unnecessary headaches further down the line.

The importance of bookkeeping for your small business

Bookkeeping for your small business is vitally important. It’s the process by which you record and report monies coming in and payments going out of your business.

Keeping on top of your company bookkeeping allows you to manage your finances efficiently, easily track payments, and claim back any business expenses (which will help to reduce your tax).

And when it comes to completing your self-assessment tax return for HMRC, believe us when we say you’ll be grateful for your organised approach to bookkeeping.

How to do your own bookkeeping for a small business

We’re often asked, “Can you do your own bookkeeping for a small business?” and “What’s the best way to do bookkeeping for a small business?” These are common queries among tradespeople just starting out with their new business.

The good news is, you absolutely can do your own bookkeeping, and we’ve got you covered with our essential guide to bookkeeping, right here.

It might seem like an overwhelming prospect, but follow our 3 steps for how to do your own bookkeeping for your small business, and you’ll be surprised just how easy it can be.

Step 1. Choose your accounting method and software

Accounting method

A business can either run its books using the traditional accounting method or the cash basis accounting method.

The accounting method you use depends on your business structure and turnover, so make sure you select the right one for your startup. If you’re unsure, we recommend you speak with an accountant for advice.

  • Traditional accounting records your income and your expenses when you do the work and raise the invoice.
  • Cash basis accounting records your income and expenses when you actually receive or spend the money.

Accounting software

You may find that a simple spreadsheet is all you need to keep on top of the bookkeeping for your startup business.

As your business grows and expands, you can look into the free accounting software on the market. It can save you time and hassle keeping track of your income and outgoings in one handy app.

We always recommend the 1Trade app from PoweredNow as it’s been designed specifically for tradespeople. Checkatrade members get this app for free as part of their membership.

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2. Keep records and stay organised

Record all business income and expenditure

Get into the habit of spending a few minutes each day or a dedicated block of time each week to consolidate your invoices and payments, expenses and receipts.

  • Use your cash books to record (in date order) when payments were made and received.
  • Record your sales invoices in date order of when they should be paid, so you can chase any late payments promptly.
  • Record your purchase invoices alphabetically by supplier name so you can find them easily. File them separately under ‘paid’ and ‘unpaid’ invoices, and move the invoices over into the ‘paid’ file once you’ve settled them.

Stay organised with a separate business bank account

Trust us. When it comes to consolidating payments and receipts, you’ll save yourself a lot of time and hassle if you have one bank account for all your business transactions and a separate account for your personal transactions. You should pay for everything through your business credit or debit card too, so it’s all recorded.

This is even more important if you run a limited company, as you and the company are two separate entities.

3. Deadlines and reports

Payment deadlines

Being consistent with your books allows you to stick to deadlines.

Whether it’s you owing HMRC for your tax, or customers owing you for completed work, late payment causes all sorts of problems for new businesses.

HMRC issues fines for late payment of tax. And if your customer invoices are paid late, it will have a negative impact on your cash flow.

Monthly reports

To keep abreast of how your business is performing, commit some time each month to produce a monthly report, which should include your profit and loss and your balance sheet.

This practice will also help to highlight any issues or discrepancies, e.g. outstanding invoices.

Reconciling in this way will help you to plan for the future (i.e. investing in your business) and address any weaknesses in processes that could leave your business vulnerable (i.e. late payments).

bookkeeping for small business

The cost of bookkeeping services for a small business

If you’re unsure how to do bookkeeping for your self-employed business, or you simply don’t have the time, why not enlist a bookkeeper to help you out?

Hiring an accountant to do your basic bookkeeping will usually cost in the region of £25 – £35 per hour.

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3 bookkeeping mistakes to avoid

Failing to budget for your tax bill

When you’re self-employed, you’re responsible for completing an annual self-assessment tax return to HMRC. Failure to pay your tax bill can result in a fine, so it’s important to budget for this.

The tax bill can often be a considerable expense for small businesses. Use the government’s self-employed ready reckoner to help budget and plan for your upcoming self-assessment tax bill.

Failing to claim on expenses

Some of your business expenses can be taken off of your turnover when completing your self-assessment, thus reducing your tax bill.

If you don’t keep clear and accurate records of your business expenses (ie. keep and organise receipts) as part of your bookkeeping processes, you’ll miss out on being able to claim these expenses against your tax bill.

Failing to keep financial records

If you’re a sole trader, you must keep your business records for a minimum of five years after the self-assessment deadline. For limited companies, it’s six years.

Bookkeeping small business template

Many accounting apps will include a bookkeeping template that’s suitable for a small business.

Leading app, 1Trade from PoweredNow is free for all Checkatrade members.

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All our members get a free finance app on us

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Can I do my own bookkeeping?

It is possible to do your own bookkeeping for your small business. The minimum ‘books’ you need to keep a record of are: your cashbook (for your business cash flow, i.e. money in and out of the business), sales invoices (for work completed and invoiced), and purchase invoices (to record business expenses and how you’ve bought them).

Does a small business need a bookkeeper and an accountant?

A small business can employ an accountant to provide basic bookkeeping services. An accountant can provide a range of additional services. This can include help with your self-assessment tax return, payroll, and business planning.

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