Setting up business accounting and finance
Financial and accounting processes are vital to your business’s success. Getting these right makes managing your taxes and official reporting much easier.
Choose payment methods for your business
You need to be able to keep track of payments coming in. Choose payment methods that offer your customers flexibility, but work for your business’s needs.
Think about:
- who your customers are – individuals, businesses or both
- where you will sell – at a premises, online, at markets or events
- your priorities – cost of service, fast access to your money, simple to use
- your systems – what integrates with your processes and software
Set aside time for bookkeeping
Set aside time each week to manage your day-to-day business finances, known as your bookkeeping. You want to know what you have, what you owe and what is owed to you.
Getting this right makes it easier to:
- understand your income and expenditure
- plan, budget and make decisions
- pay the right amount of tax
- show potential lenders or investors that your business is in good health
Some people use spreadsheets for their business finances, but dedicated accounting software can save on duplication and make tax returns easier.
Comply with Making Tax Digital
Making Tax Digital is a government programme that requires businesses to use specific software to regularly log income and expenses, and to submit their tax returns.
Businesses have to use software that complies with Making Tax Digital if they:
- are registered for VAT
- are sole traders or landlords who are registered for Self Assessment and had income over a certain threshold
New businesses won’t be affected until they register for VAT or complete their first Self Assessment return. But if you are choosing accountancy software, you should look for a package that will work with this system.
Software offers
Some banks offer a free subscription to accounting software that complies with Making Tax Digital when you open a business bank account.
Some banks offer a free subscription to accounting software that complies with Making Tax Digital when you open a business bank account.
Keep accurate records
You must keep accurate records of all the money that moves in and out of your business. This means keeping:
- records of sales and other business income – invoices, till rolls, bank slips
- records business expenses, including cash purchases and expenses related to stock or assets – receipts, purchase orders, invoices
- bank statements – including personal bank statements
- information about your debts and any debts owed to you
- PAYE records if you employ anyone
Choose an accounting method
Sole traders and partnerships can choose an accounting method, and pick from:
- cash basis accounting, where you record income and expenses when money actually moves in and out of your business
- traditional accounting, where you record income and expenses when they are earned or owed, often when you send or receive an invoice
Many small to medium businesses use cash basis accounting because it is simpler. But you may want to find out more about traditional accounting if:
- your business carries lots of stock
- you expect to have lots of unpaid invoices and want a clearer picture of profitability
- your business has complex finances, such as long-term contracts
Businesses which cannot use cash basis accounting
You must use traditional accounting if your business is a limited company, limited liability partnership, or a partnership with a corporate partner. Certain farming businesses and businesses who claimed specific allowances must also use traditional accounting methods.
You must use traditional accounting if your business is a limited company, limited liability partnership, or a partnership with a corporate partner. Certain farming businesses and businesses who claimed specific allowances must also use traditional accounting methods.
Decide if you'll use an accountant
An accountant uses your financial records, or books, to understand how your business is performing.
Hiring a professional, rather than doing the work yourself, has advantages and disadvantages.
Advantages
- Saves you time that you can invest in other parts of your business.
- Can help you identify ways to save money or be more tax-efficient.
- Can help to prepare forecasts or financial statements you need for funding applications.
- Can keep an eye on deadlines and ensure you remain compliant with reporting and returns.
- Saves you time that you can invest in other parts of your business.
- Can help you identify ways to save money or be more tax-efficient.
- Can help to prepare forecasts or financial statements you need for funding applications.
- Can keep an eye on deadlines and ensure you remain compliant with reporting and returns.
Disadvantages
- Additional cost of paying either one-off fees or a monthly retainer.
- Can stop you from learning important financial skills.
- You may depend on this person’s advice, so need to find someone you trust.
- Tax and finances remain your responsibility so you need to retain oversight.
- Additional cost of paying either one-off fees or a monthly retainer.
- Can stop you from learning important financial skills.
- You may depend on this person’s advice, so need to find someone you trust.
- Tax and finances remain your responsibility so you need to retain oversight.
Costs and benefits of accountancy services
Accounting services may cost less than you think. Using an accountant can reduce stress and free up time to work on your business. Shop around, and ask friends and family for recommendations before you make a decision.
Accounting services may cost less than you think. Using an accountant can reduce stress and free up time to work on your business. Shop around, and ask friends and family for recommendations before you make a decision.
Submit your accounts
The accounts or records you need to submit to government depend on your business structure.
Sole traders and partnerships
Sole traders and partners will use business records to complete a Self Assessment return each year.
Limited companies and limited liability partnerships
Financial recording and reporting for limited companies and limited liability partnerships is more complicated. You will need to:
- file annual statutory accounts
- pay your Corporation Tax bill
- submit your Company Tax Return
- file a Confirmation Statement
- complete a Self Assessment tax return if you received dividends or any untaxed salary