So, if you’re new to the world of entrepreneurship, how can you efficiently keep on top of your financial situation? We’ve put together some top tips below to get you started:
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1. Separate your personal and business accounts
One of the most common mistakes small business owners make is to blur the boundaries between their personal and business finances. While it may not seem like a big deal to buy a few coffees on a business account that you own, it could land you in hot water, particularly if you own a limited company. Remember that limited companies are separate entities under the law, meaning such transactions could raise serious questions.
It is a smart move even for sole traders to open a separate business account, as it makes your company appear more professional and speeds up the process of filing taxes. After all, you don’t want to spend hours manually sorting business expenses from personal expenses as the tax deadline approaches.
2. Set aside time for bookkeeping every week
Okay, we understand getting your finances in order may not be super entertaining, but it is vital for keeping your business running smoothly. Set aside an hour or so every week to monitor incomings and outgoings. Disciplining yourself in this way will help you to develop a clear and thorough picture of your company’s financial health, something which could inform life-changing decisions in the future. If you’re struggling to keep it up, schedule the task for a Monday morning when you’re feeling fresh – and reward yourself with a delicious coffee afterwards!
3. Invest in some bookkeeping tools
If numbers aren’t your strong suit, don’t fret – there are plenty of handy bookkeeping technologies out there to make your job easier. Gone are the days when Microsoft Excel was the go-to software for financial planning. For an intuitive and smooth process, we recommend tools such as Xero and KashFlow. Both are cloud-based accounting services specifically designed for small businesses that offer a range of features such as automatic recording of bank transfers, expense tracking, and online bill paying capabilities. KashFlow also doubles up as a payroll and invoice tool if you’re keen to arrange most of your transactions on a centralised platform.
4. Keep hold of important paperwork
Although many financial transactions occur online, you must retain hard copies of documents such as PAYE records for employees and receipts for business expenses. As well as protecting you from data hacks, keeping your records safe could prove vital when communicating with HMRC. Sole traders must retain paperwork for at least five years after the submission deadline of the tax year. Failure to show such documents when asked could result in a hefty fine.
5. Record business expenses carefully
To avoid paying too much tax on your profits, make sure you record all expenses that qualify for tax relief. Research what you can and can’t claim as a business expense carefully and reach out to HMRC if in doubt.
6. Plan ahead and hire help if necessary
Good financial planning is all about looking towards the future. Use your bookkeeping records to plan for seasonal lulls in profit and think carefully about when you may need to replace expensive business assets such as machinery or computers.
As your business grows, analysing your expenses and filing taxes is likely to become more complicated. What’s more, you’re likely to be very busy and have less time for financial management. This is where outsourced bookkeeping services come in. With a qualified accountant on hand, you can rest assured that your financial affairs are in good hands.