It may not be your favourite task of the working day, but accounting and bookkeeping are vital for financial health. That goes whether you’re in business or just managing the household budget. Even people who swear they do no accounting probably do, even if it’s just a quick balance check before making a cash withdrawal.
Accounting needn’t be time consuming or tedious if you follow these fundamental, organisational steps:
Have an Appropriate System
If you start out trying to manage your household budget with professional accounting software, for instance, you’re setting yourself up for unnecessary complication and confusion.
It’s better to use the simplest system you can, while still making all the necessary records accurate, clear and complete.
- Maybe you don’t need more than a physical ledger that you can buy in a high street stationer’s to keep track of expense and income.
- Maybe an online accounting package will offer just what your small business needs, allowing you to scale up the functions you use as your business grows.
- Maybe you need the full works, with payroll and other sophisticated features.
Choose wisely, and keep things as basic as possible. The more you understand about how your system works and the easier it is to access and update, the more likely you’ll be to keep your books up to date.
Separate Personal and Business Accounts
It’s quick and easy to set up a business bank account when you don’t need to borrow money. It’s also free for the first year at most banks, with some offering longer as an incentive.
Mixing up personal and business accounts creates muddles that can be difficult to sort out, and which may cause extra expense at the end of the year when it’s time to submit your tax return. It can also lead to a false sense of financial security when business money is mixed with household or personal money. Overspending is a lot easier when you’re not sure exactly how much is available.
Another main benefit in keeping your accounts separate is that you can more easily calculate your business profits and therefore anticipate your tax bill. When you know how much tax you’ll have to pay, you can set up another account just for tax savings. Plan to set aside around 25% of everything you earn.
Save Time and Hassle with Professional Services
People mistakenly believe they can do their bookkeeping and accounting much cheaper by themselves. Sometimes it’s true, but many go on to create unnecessary headaches, anxiety and expense.
If daily ledger updating is a chore you’re constantly putting off, you need a bookkeeper. They will make sure all transactions are entered into the correct categories, all invoices are paid or monies received, and will generally safeguard your daily business records.
If end of year taxes, profit and loss forecasts or cash flow charts give you nightmares and cause days of overtime working, you need an accountant. Before you hire an accountant, make sure you understand how they prefer your books to be presented, then try and work to their preferred system. Keep all the records they need up to date (with a bookkeeper if you can’t do it yourself), and tax returns will no longer be such an issue.