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Understanding small business accounting for tradespeople

Understanding your business's finances is fundamental to its growth and continued success. But it can also be tricky to wrap your head around if you’re just starting out. Keep reading to learn more about small business accounting so you can track your finances.

Understanding small business accounting

It doesn’t matter if you’ve run your business for years or are just starting out, business finance can be tricky. This is especially true if numbers aren’t normally your thing.

But the good news is that small business accounting isn’t as difficult as it might seem.

So, rather than suggesting you hire an accountant immediately, we’re going to teach you the secrets to good finance management.

From staying organised to working out accounting costs, let’s look at what you need to know for accounting for small businesses!

What is accounting for small businesses?

First things first, let’s break down exactly how business accounting differs from bookkeeping. And why they’re important to separate to make your overall business accounts easier to understand:

Small business bookkeeping

Bookkeeping is what underpins your business accounting as a whole and it’s essentially the first part of the accounting process.

With bookkeeping, you follow the process of recording, organising, and reporting your company’s financial information. This lets you more easily interpret the raw financial figures down the line.

Small business accounting

So, if bookkeeping is the first step in the accounting process, then accounting is obviously the rest.

With accounting, your main focus is on the interpretation and presentation of this financial data in a readable manner.

This in turn allows you to gain a better understanding of how your business is performing. Helping you to make more informed business decisions and find out how much tax you owe.

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How to do accounting for small businesses

With an understanding of what accounting for small business practices involves, let’s look at how to actually do your accounts. So, to start with, you need to make sure your bookkeeping is done.

Once this is out of the way, you can then turn your attention to summarising this data. Here, you’ll need to outline the yearly financial performance of your company under three reports:

  • A balance sheet
  • An income statement
  • A cash flow statement

These in turn will cover the following financial areas:

  • Your overall sales
  • Your total outgoings
  • Your business’s current assets (stock, machinery, equipment, etc…)
  • Any finances that you owe or are owed for this financial year
  • Tax calculations based on your income and other areas so you can pay the right amount of tax to HMRC, as well as working out your tax deductibles

With these documents to hand, you can use them to examine your financial approach for the coming year.

how much does an accountant cost

Should I hire an accountant to handle my accounts?

It goes without saying that simply stating what documents you need to write up can only help so much. That’s why we’d highly recommend using an accountant to make the process easier.

This means that all you really need to do is keep your general finances organised throughout the year. Your accountant will handle the actual document creation and then help you interpret it correctly.

This in turn will give you a clearer ongoing picture of your business’s finances. As well as highlight potential growth plans and check you’re compliant with taxes.

Both of which are invaluable for effective cash flow management.

How much does an accountant cost?

Like many financial services, the price of an accountant’s time will vary depending on the services you need. Below is a breakdown of what you could expect to pay any accountant you use:

  • Basic bookkeeping – £25 – £35 per hour
  • Tax planning – £150+ per hour
  • A tax returns – £150 – £250+ per return
  • A combined package – £60 – £250 per month, depending on the size of your business

However, these numbers are by no means fixed, and the accountant you hire may very well charge more or less.

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Using software to aid in accounting for small business

As you can see, accounting for small business practices is by no means simple.

That is why you might want to consider using accounting software to simplify the process. Especially if you plan to do your accounting personally.

Thankfully, there are plenty of user-friendly apps on the market.

Making it easy to find one that’ll suit the needs of your business. Though we’d certainly recommend keeping an eye out for apps that provide the following:

1. Basic features

Good accounting software should provide the following basic features:

  • Invoice creation
  • Quote preparation
  • Provide estimates
  • Digital storing of purchase orders

2. Advanced features

On top of these basic features, the best apps may also offer the following additions:

  • The ability to view cash flow forecasts
  • Preparation of digital certificates
  • Tracking of your team’s scheduling
  • The submittal of VAT returns directly to HMRC

Financial planner vs accountant

Small business accounting FAQs

Is it worth getting an accountant for my small business?

Generally speaking, if you can’t wrap your head around accounting or lack the time, you should hire an accountant.

As we’ve pointed out, they’re trained to do this for a living and will make the whole process income statement. This is a financial document showing your business income, expenses and profit (or loss).

What is the best small business accounting system?

There are lots of choices out there, all of which have different features and experiences.

However, the most popular and best-rated software for small business accounting tend to be:

  • QuickBooks
  • Sage
  • FreshBooks
  • Xero
  • TrulySmall
  • Zoho Books

How can I understand basic accounting with so much jargon?

As with any discipline, there are a whole bunch of different terms to learn if you’re trying to do your own accounting. It’s another reason why hiring an accountant might be the better option!

However, we’ve put together a list of some of the common terms that you might need to know. After all, an accountant or bookkeeper is an expense that you may not be able to afford when you’re just starting out.

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Content disclaimer: This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer here.

This is information – not financial advice or recommendation. The content and materials featured or linked to on this blog are for your information and education only and are not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such. Checkatrade website is not regulated by the Financial Conduct Authority (FCA), its authors are not financial advisors, and it is therefore not authorised to offer financial advice.
Always do your own research and seek independent financial advice when required. Any arrangement made between you and any third party named or linked to from the site is at your sole risk and responsibility. Checkatrade blog and its associated writers assume no liability for your actions.

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