When you work for yourself – whether as a sole trader, freelancer, contractor or small business owner – it’s essential to keep on top of your business finances.
A critical aspect of this is bookkeeping. Bookkeeping for small businesses is the recording of your incomings and outgoings. But if you’re new to self-employment, it’s another thing to get your head around – and it can be daunting if numbers aren’t your forte.
We’ve covered the basics in this article so you can understand and get started with bookkeeping for your small business.
What is bookkeeping?
Bookkeeping is recording financial transactions – income and outgoings – into organised accounts. It’s one of the key practices in the overall process of accounting.
What’s the difference between bookkeeping and accounting?
Accounting is a business function built on bookkeeping and other financial processes, like cash flow forecasting, along with your tax obligations.
Together, bookkeeping and accountancy give you the complete picture of your business finances, while also ensuring that you meet all of your tax responsibilities.
Why is bookkeeping important for small businesses?
The importance of bookkeeping for small businesses is evident. It helps you see whether you’re spending more than you’re earning, and keeps you on top of invoicing clients, along with expenses such as paying any suppliers.
Having accurate financial records is essential when it comes to your tax returns, too – whether your self-assessment or Corporation Tax.
DIY bookkeeping compared to hiring a professional
Some small business owners choose to manage their own bookkeeping. Software options are available to make the task easier for you.
But if you’re not confident about bookkeeping, you can engage the services of a trusted expert.
The cost of small business bookkeeping
If you’d rather outsource bookkeeping to a professional, accountancy firms – like Caroola – can help.
We offer full-service accountancy services – which includes bookkeeping software – for sole traders and limited companies, with monthly fees starting from just £28 + VAT per month.
How to do basic bookkeeping for a small business
Bookkeeping’s reasonably straightforward, and boils down to a few simple responsibilities:
- Recording your transactions – The first and most important step is to record every single transaction you make. You can do this with bookkeeping software, on a spreadsheet, or writing in a cashbook.
- Reconciling your transactions – Reconciliation is matching each transaction from your cashbook (or software) to your bank statements, to ensure that everything matches up.
- Accounts payable and accounts receivable – Accounts payable is what you owe; accounts receivable is what you’re owed. Accounts receivable is also the term for the steps in the collection process. So, accounts receivable covers the issue of an invoice, chasing payment and reconciling the invoice and the payment, too.
Bookkeeping Software
With the introduction of Making Tax Digital for Income Tax and requirements to file limited company accounts electronically, it is more vital then ever to use cloud based bookkeeping and accounting software. Caroola have fully MTD compliant software and can also accommodate most leading platforms if you already use bookkeeping software.
Learn more about small business bookkeeping
You could take a short course if you’d like to learn more about bookkeeping. There are plenty available online and others that you can attend in person. The cost of any courses would also likely be an allowable business expense as HMRC have published expanded guidance around training costs and clarified that they would generally allow training costs that are not directly related to your trade activity but can be considered ancillary to supporting and growing your business.
In summary
So, bookkeeping is essential for any small business, no matter how you operate. And with the free and paid-for options available, you’ll be able to get started in the way that best works for you.
To find out how Caroola can help with your bookkeeping and day-to-day accounting requirements, please get in touch.