Your financial accounts aren’t just something to look at once a year (perhaps several months after the year-end) …
When starting your side hustle, accurate and timely figures will show you when you can make the move to full-time, so you need this information sooner rather than later.
Unfortunately, there are businesses that don’t get up to speed with their bookkeeping and accounts. Not only can these cause problems with the tax authorities, but it can also damage the business by not having the correct information available for planning.
We’ll cover how to put accounting systems in place at the start.
By the end you’ll understand the importance of bookkeeping and accounts, and with systems in place can concentrate on other areas.
When people start a business there are so many other jobs that need time that unfortunately the bookkeeping and accounts can be something that falls behind.
Before they know it, they have bundles of paperwork lying around and may have missed reporting deadlines to the authorities.
This can result in unnecessary fines and penalties, that are a drain on the businesses finances at an early stage. It’s quite common to see fines that are more than the cost of engaging someone to do all the work for you right from the start would have been.
Some people also wait right to the last-minute before a filing deadline to complete their accounts and bookkeeping, but again this can cause damage to the business.
When you are reviewing how you have done, where the money has gone and how you need to optimise the business going forwards you need your accounts – and also as soon as possible, rather than maybe 9 months after the year-end.
If you are not making sure that you optimise your spending to reinvest in the business, it can also result in you paying too much tax. Perhaps a new vehicle would be a cost, but you would make it back in savings – you need your accounts to know things like this.
There can also be the case of unpaid invoices, that you don’t know about without an effective system in place.
Make things easy
Bookkeeping doesn’t have to be a chore, if you are going to do it yourself I would recommend setting aside some time in the diary every week to keep up to date. Weekly bookkeeping is best as then it should just be a fairly quick process, if you leave it to once a month the paperwork can start to become be off-putting.
For a small business just starting out a simple spreadsheet may be all that you need. The UK authorities allow you to store the actual receipts electronically provided you have a full copy of both sides and keep a backup. You also have to keep your records for generally 7 years in the UK, so electronic copies of the paperwork will save you considerable time and space. (Making sure you that have backups.)
Things have continued to evolve and it is possible to even make use of apps to take pictures of receipts on your phone, which are then uploaded and can link into an accounting system or report for you – these can then be used by you and also passed to your accountant.
Get Professional Assistance
When it comes to the actual accounts themselves, as for taxation, I always recommend engaging a professional – because the tax and accounting rules are constantly changing.
You’re in business to run your own business, not to learn how to become an accountant as well. I’ve seen people get themselves into real messes with the tax authorities by claiming allowances they were not entitled to, and as a result ending up with huge liabilities that they couldn’t pay.
On the other side, others have not claimed all the allowances they were entitled to, so as a result have paid too much tax or lost out on refunds.
I read a report recently that in the US, people trying to do things DIY were actually costing themselves over $1,000 every year through lost time and incorrect claims. For the small business owner this can be much higher.
Because things change so fast, it is quite normal for even specialist accountants to engage a general accountant themselves, to help them with their own affairs. Even though they are themselves professionals, they realise that there are areas that they don’t specialise in. Using professional help with your accounts is something that is of great value to your business.
As for other professionals that you may choose to engage, an accountant’s fees are a qualifying business expense, so you’ll receive tax relief on them.