Education

How to do bookkeeping: for small businesses and the self-employed

7 Mar 2023

So, your business venture is well and truly off the ground and you’re beginning to see an increase in transactions. While it’s important to keep the momentum going, you’ll also need to have a robust bookkeeping system in place. Let’s take a closer look at the ins and outs of bookkeeping, and explore how a combination of bookkeeping and accounting can help your business to thrive.

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What is bookkeeping and why is it important?

Bookkeeping is the act of accurately recording and tracking your organisation’s financial transactions. It enables you to understand how much your business earns and spends, and know how much money you have to work with. 

Bookkeeping responsibilities include:

  • Keeping a record of financial transactions 

  • Managing invoices and recording payments

  • Paying suppliers and keeping a record

  • Managing payroll if you employ people

  • Keeping a record of accounts receivable 

  • Keeping a ledger (the main financial record-keeping system)

It’s a good idea to establish an effective and efficient bookkeeping system as soon as you can, and dedicate an hour a week – or a few minutes a day – to bookkeeping tasks. You might decide to manage your bookkeeping in-house or outsource it to a qualified professional. It’ll depend on your budget, preference and time constraints. 

What should you keep a record of for bookkeeping?

You should be able to access your bookkeeping platform remotely and with ease. Opt for a secure digital solution that allows you to store information in one place. Here are some of the financial aspects of your business you should keep a record of: 

  • Your income and expenditure, including receipts

  • All payroll records

  • Other personal income for your self-assessment tax return 

  • Any income you receive from grants 

Rules around record keeping can differ depending on the structure of your business, i.e. whether you're registered as a sole trader, partnership or limited company. You can refer to HMRC’s guidance on running a limited company for more information. 

In terms of how long to keep your records, the current rule is a minimum of five years after the end of the tax year. In other words, for records for the year ending April 5 2023, you’ll need to hold onto your records until at least January 31 2029. 

Four key benefits of bookkeeping

  • Helps with budgeting – it’s much easier to achieve budget accuracy when your records are up-to-date (as opposed to relying on guesswork).

  • Helps you meet tax obligations – regular bookkeeping will empower you to prepare for your tax bill because you can better predict you might owe. 

  • Helps you set goals – it’s easier to set realistic targets and track progress when you’re aware of how your business is faring financially month-to-month, or even week-to-week.

  • Helps with peace of mind –of course, being on top of your bookkeeping will provide you with peace of mind; something you can’t put a price on! 

What’s the difference between bookkeeping and accounting?

As a new business owner you might think that bookkeeping and accounting are one and the same – but they’re not. It can help to think of booking and accounting in terms of the professionals who specialise in them. 

A bookkeeper is someone who keeps records of a business’ financial transactions, whereas an accountant is someone who analyses and reports on the findings, and they can help business owners make informed decisions. 

Both bookkeeping and accounting are key when it comes to a business’ financial health, whether the business is a small enterprise or startup, or a large established corporation. Accountants can provide accounting and bookkeeping services.

Here are some key things an accountant can do:

  • Help you fill out tax forms 

  • Help you reduce your tax bill 

  • Help you plan your tax liability

  • Help with your business strategy

  • Help you make business decisions

  • Help you manage your cash flow

  • Help you identify any financial pain points

  • Help you manage any business debts

  • Help you pinpoint opportunities for funding

Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors – including accountants. If you or your accountant have identified an area of your business that could benefit from additional funding, you can use our platform to see how much you could be eligible for.

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Stuart
Stuart Lawson

Chief Commercial Officer

Stuart is Chief Commercial Officer at Funding Options where he plays a key role in driving the growth of the business and its relationships with more than 120 partners. A finance industry veteran, he has a strong background in alternative finance, corporate and commercial banking, as well as global transaction banking.

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