5 Vital Accounting Tips for Small Businesses
Written by Team 365 finance
Bookkeeping probably isn’t the first thing you think of when you initially conceive your business idea. Yet every small business owner spends endless hours working on financial admin to keep their company running smoothly. If you don’t have a financial or accounting background, all that admin can be tough.
We’ve come up with five vital accounting tips to aid small businesses with SME bookkeeping. Our advice can help you cut down on the time you spend maintaining your financial records, so you can spend more time growing your business and selling your goods.
Here, we’ll look at a range of accounting topics, including:
- Why is accurate bookkeeping important?
- How can technology help me keep my finances in order?
- Who do I turn to if I struggle with SME bookkeeping?
- And more
Read on to discover helpful accounting advice from 365 finance.
Why Is Accurate Accounting Important?
Money keeps your business running. It pays the bills for your business properties, buys your stock, and pays employee wages. Keeping track of it is crucial to sustaining smooth business operations.
Creating and maintaining sound financial records is the first step in a whole range of crucial business tasks. For example:
- Budgeting: To work out how much money you’re going to spend on a particular project, you need to know how much money you have and how much money you’ve already spent. Accurate bookkeeping helps you answer both.
- Decision-making: Wondering whether you can hire a new employee or expand your businesses into a new market? It’s important to consult your financial records before you make significant decisions.
- Applying for investment: Most investors will need to see your financial records before they invest in your business. Accurate, detailed financial documents show investors that you’re competent and capable.
Additionally, accurate accounting prevents negative consequences like tax errors and cash flow problems. Even if you don’t have the skills yourself, it’s vital to have someone to handle accounting and SME bookkeeping tasks for your business.
1. Keep Your Finances Separate
Businesses on the smaller end of the scale — particularly single-person businesses — may fall prey to the mistake of using a personal bank account for business funds and spending, and vice versa.
It’s important to create separate business and personal accounts to accurately track and differentiate between business expenses and personal spending. Doing so means you can create more accurate financial forecasts and budgets.
Additionally, building a Self Assessment tax return is far easier when you use separate accounts, as you’ll be able to accurately identify tax-deductible expenses. Some business banking apps even help you build tax returns by automatically categorising expenses.
Finally, it’s crucial that you separate any personal or business debts, especially when it comes to repayments. With the UK interest rate rising to 4%, loan repayments will soon grow higher, which could cause cash flow problems if you repay personal loans with business funds.
2. Look for a Digital Solution
Modern business is heavily linked to the use of technology, particularly when it comes to the movement of money. The increasing popularity of open banking is a great example, as many businesses now use some form of open banking to facilitate payments or help them acquire funding.
Another key example of financial technology for SMEs is accounting software. However, only 50% of UK SMEs are using digital accounting solutions, which is a huge missed opportunity for the other 50%, as these technologies can massively reduce the time you spend on financial admin.
Since the UK government’s Making Tax Digital (MTD) requires companies to submit their VAT records digitally, and to do so with MTD-compatible software, using a digital accounting solution will soon become unavoidable for UK SMEs. Some of the most popular solutions include Xero, Sage and Quickbooks. However, be sure to research which software best matches your needs.
3. Research Tax Rules
Good accounting is necessary for your business to stay tax compliant. Errors in your financial documents invariably mean errors in your tax returns, which can lead to financial and legal penalties, as well as audits.
A good idea for small business owners is to research any tax rules and regulations that will be relevant to their business, to ensure poor bookkeeping doesn’t lead to run-ins with HMRC.
Tax returns are a great topic to look into. If you have a solid understanding of which expenses are VAT deductible, you can massively cut down on your annual tax bill. Additionally, when creating a return, make sure you know how to submit it. Some of HMRC’s online portals require you to register before submitting your return.
It’s also good to check on the more basic tax-related tasks, even if they were completed when you set up your business. For instance, you may want to check if you are registered for VAT in the UK. However, it’s most likely you did so when you initially established your company.
4. Work Out a System for Your Digital Documents
Keeping track of your receipts and invoices is basic bookkeeping, but it’s still important to have a system to keep track of your documents. Of course, this doesn’t always mean a physical filing system; in modern business, almost all of your important financial documents will be digital. In fact, the Making Tax Digital scheme means that your key VAT records have to be stored digitally by law.
For businesses using the cloud-based accounting solutions we mentioned above, there will usually be a storage system within the software that keeps track of the records it generates from your financial transactions. However, if you start creating documents outside the program — for instance, if the accounting solution you use does not allow you to generate financial forecasts, or if you need to present financial records to an investor — it’s vital that you track where everything ends up.
Look at building a digital filing system, using specific cloud software to store your documents, or even at backing up your financial data onto physical hard drives, for added security.
5. Don’t Hesitate to Ask a Professional
Sometimes things won’t go to plan with your accounting. Balance sheets might not add up, or you could get tangled up in the complexities of your tax return. Luckily, there is an easy solution available.
There are over 40,000 accounting firms in the UK, so there’s plenty of help available for SMEs who struggle with accounting. Although it might seem obvious to go to a professional accountant to help with your bookkeeping, some small business owners may insist on doing things for themselves.
However, when it comes to accounting, the consequences of getting things wrong mean that it’s not worth the risk to do it yourself if you’re not confident in your abilities. Although the services of a professional accountant will have a fee attached, it’ll cost your business much more if you consistently get your taxes wrong or miscalculate your monthly spending.
Ensure a Healthy Cash Flow with 365 finance
By following the advice above, you can start maintaining your finances much more efficiently. While keeping good financial records can help you avoid cash flow problems, sometimes you’ll find yourself in need of additional capital.
If you need a fast, simple way of securing additional funds, contact 365 finance and ask about our revenue-based finance options.
Revenue-based finance is different from traditional funding options like bank loans. We can approve a business for a Rev&U cash advance (our primary funding option) within 24 hours — and we approve over 90% of the applications we receive. Our application process only takes minutes and doesn’t require a security or business plan. That means you’re free to spend the cash advance on whatever you think helps your business the most.
Additionally, revenue-based funding options don’t have a set monthly repayment. Instead, a percentage of your monthly revenue will be used to pay off the advance you receive. So if you have a month of great sales, you’ll be repaying the advance much faster! And even better, if you have a slow month, you don’t need to worry about how you’ll afford repayments.
At 365 finance, we can provide both long and short-term finance solutions, with revenue-based funding available from £10,000 to £400,000 in capital. Apply for funding today without affecting your credit score, or speak to our team to find out how we can help your business. To find out more, head to our website.