We all have our own systems for keeping on top of our personal bookkeeping: some of us are super organised, using budgeting apps and filing systems, whereas others simply hope for the best.
But when it comes to your business, you’ll always need to be up-to-date with your bookkeeping, because you must prove that your income and expenses are balanced and accounted for. Without this, you’ll face real challenges that could easily jeopardise your business.
What is bookkeeping?
Bookkeeping is the art of recording your financial information so it’s easy to see what money is coming in and what you’re spending. In order for your business to be successful, you need to be balancing the books every single month, otherwise, you might struggle with paying for things like equipment, suppliers and even your taxes. It’s a good habit you really want to be getting into from the very beginning.
Why is it important?
You won’t be able to run your business for very long without sound knowledge of your business finances.
There’s a number of different taxes small businesses need to pay throughout the year and bookkeeping means you can correctly calculate how much they’ll be. This helps you prepare for the financial year ahead and allows you to think about what your next moves are, whether that’s growing your business or setting up a limited company.
Anyone who is self-employed needs to file a yearly Self Assessment. This is used to declare your earnings and other income to HMRC and calculate how much you’ll need to pay in National Insurance and Income Tax. In order to do this effectively, and for things like filing early (which has many benefits), your bookkeeping must be organised.
If you have an accountant, they’ll still need you to keep on top of your bookkeeping such as getting your invoices out and recording your expenses, as they simply can’t do their job without knowing your income and outgoings. Some accountants will need you to record everything using online tools (or excel if they’re old-fashioned), others will take care of your bookkeeping for you (at Crunch we can do either). When your bookkeeping is in good shape, your accountant can help you with things like making tax-efficient decisions and registering for VAT.
It’s also worth remembering that if you dream of expanding your business, you’ll need to be able to prove its profitability to investors, new partners, and banks. Good bookkeeping practices can help you with this.
Need more help?
Our essential business guide to bookkeeping features top tips on how you can manage your bookkeeping, so that it serves you properly, from understanding the ins and outs to how technology can streamline and simplify the whole process. Join Crunch Chorus our free community for the self-employed and you can download and keep our Bookkeeping Guide now.