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Simple guide to bookkeeping for businesses

How to Organise Finances and Avoid Common Mistakes

Good bookkeeping is the backbone of every successful small business. It ensures you maintain a clear view of your financial health and make informed decisions to grow your business. But for many small business owners, bookkeeping can feel overwhelming. This guide will help you understand the basics of organising your finances and avoiding common pitfalls.

Why Bookkeeping Matters

Bookkeeping is more than just tracking income and expenses—it’s about building a strong foundation for your business. Proper bookkeeping can help you:

  • Secure funding: Lenders and investors need accurate records to assess your business.

  • Make informed decisions: Analyse trends and plan for future growth.

  • Understand your cash flow: Know where your money is coming from and where it’s going.

  • Prepare for tax season: Avoid the last-minute scramble by having everything ready for HMRC.

1. Set Up a System That Works for You

Before you dive into bookkeeping, you need a system to keep everything organised. This could be as simple as spreadsheets or as advanced as accounting software.
  • Manual systems: Spreadsheets like Excel or Google Sheets work well for small businesses with straightforward finances.
  • Accounting software: Tools like QuickBooks, Xero, or FreeAgent automate tasks like invoicing and expense tracking, saving you time.
  • Professional help: If bookkeeping feels too time-consuming, consider hiring a bookkeeper or accountant to manage it for you.

2. Separate Business and Personal Finances

One of the most common mistakes small business owners make is mixing personal and business finances. This can create confusion, make tax filing harder, and even put your personal assets at risk.
  • Open a business bank account: Keep all income and expenses in one place.
  • Use a business credit card: This helps you track business spending more easily.

3. Track Income and Expenses Regularly

Consistency is key in bookkeeping. Set aside time weekly or monthly to record all transactions. 
  • Categorise expenses: Group expenses into categories like rent, utilities, marketing, and supplies. This will make it easier to track where your money is going.
  • Keep digital records: Use apps like Receipt Bank or Hubdoc to scan and store receipts, reducing the risk of losing important documents.

4. Reconcile Your Accounts

Reconciling means comparing your financial records to your bank statements to ensure they match. This step helps you catch errors or discrepancies, like double charges or missed payments. 
  • Automate with software: Most accounting tools include bank reconciliation features to simplify the process.
  • Do it monthly: Regular reconciliation keeps your records accurate and avoids unpleasant surprises.

5. Understand Tax Requirements

Small businesses in the UK are required to follow certain tax rules. Stay on top of these to avoid fines or penalties.
 
  • Register for VAT (if applicable): If your turnover exceeds £90,000, you must register for VAT.
  • Set aside money for taxes: Save a portion of your income for income tax, National Insurance, and corporation tax (if applicable).
  • File your returns on time: Use HMRC’s Making Tax Digital (MTD) platform for seamless submissions.

6. Plan for Growth

Good bookkeeping isn’t just about keeping records—it’s about preparing for the future.
 
  • Monitor cash flow: A healthy cash flow is essential for growing your business.
  • Review financial statements: Understand key documents like your profit and loss statement, balance sheet, and cash flow statement.
  • Budget effectively: Use your records to forecast future income and expenses.

Common Bookkeeping Mistakes to Avoid

Even with a good system, mistakes can happen. Here are some to watch out for:
  1. Procrastinating: Falling behind on bookkeeping leads to stress and errors.
  2. Not keeping receipts: Missing receipts could result in lost deductions or penalties from HMRC in the event of an enquiry.
  3. Ignoring cash flow: Focus on cash flow, not just profits, to ensure you can meet financial obligations.
  4. DIY errors: While DIY bookkeeping is fine for some, complex finances often require professional help.

Need help? Get in touch today

E-mail us at enquiries@mylocalaccounting.co.uk or call us on 0116 298 2425