When it comes to business records, in our profession we see it all, really. From super-organised, beautifully labelled and meticulously catalogued files, delivered on time; to... let's just say, the opposite. But it really doesn't have to be that way!
It's probably unnecessary to list the reasons why keeping good business records is strongly advised, but I'm going to anyway, for the sake of completeness:
- it's easier to track how the business is performing, what the assets and liabilities are, and who owes what;
- it's easier to keep the taxes (PAYE, VAT, Corporation tax etc) up to date and avoid late payment penalties and interest;
- it helps evidence claims to tax reliefs and deductions, should the taxman ever come knocking;
- it helps your tax adviser maximise claims to tax reliefs;
- it enables better cashflow management; and
- it's easier, and therefore less expensive and quicker, for your accountant to prepare the accounts and business/ personal tax returns.
Getting the books in shape is really not that hard, the main thing is just to get yourself a system in place... and then stick to it! For very small businesses that are not VAT registered, fundamentally the main thing is to keep a record of income and a record of expenditure, along with copies of the underlying documents (ie purchases and sales invoices).
The record could be a handwritten book, a spreadsheet, or basic accounting software. A little bit of analysis of the figures may be helpful too, for example between different types of sale or different types of expenditure, though this is not always essential.
A document filing system will probably help too - sales and purchase invoices could be filed by calendar date/ month, or by customer/ supplier. Again, this could be paper filing, or you could use a 'virtual' filing system like Receipt Manager on the Scholes CA App. It's also a good idea to sequentially number your sales invoices.
As we move up the scale, record-keeping for bigger businesses - and VAT registered businesses - does demand a higher degree of organisation. Compliance with the VAT rules can only be achieved with a robust recording system, and choosing a good cloud product like Quickbooks Online is probably the way to go here.
Regardless of whether you choose to keep your financial books manually or online, the following practices will certainly help:
- keeping your records up to date - I suggest processing at least monthly (as it may be hard to correctly recall and record transactions undertaken many months ago)
- reconciling from the records to the bank statement at least monthly (as this should help identify any errors in your records)
- checking with your accountant if you're not sure how to record a transaction (we're here to help!)
- keeping copies of all purchase invoices/ expense receipts (again, get yourself a filing system, manual or electronic, and stick with it!)
- once the year-end has passed, handing in the records to your accountant promptly (queries may be easier to answer if they relate to more recent events; any problems may be easier to fix if identified more promptly)
If all else fails, consider whether it may be more economic simply to outsource your bookkeeping/ VAT work to your accountant. For many small businesses, ultimately this is the best option.