Updated: Jun 3
Receipts piling up? business and personal costs mixed up? not sure how much cash is coming in this month and haven't even thought about tax yet? Does some of this apply to you?
Take a deep breath. If your business is taking off, but the money side has been left behind help is here.
It's all solvable
First things first - take stock. There's no getting away from it, if there is a backlog of paperwork getting it in order will bring huge relief. You will know where you stand financially. Once those receipts and bank statements are sorted through you have some solid ground to stand on. You can do this yourself, but if it's all too much a good bookkeeper or accountant can help get you straight. They will categorise your income and expenditure so you know exactly where your money is going to and coming from and can let you know if you are making a profit or loss, how much you owe and how much is owed to you. Now you can put steps in place to keep you straight going forwards.
Check you're compliant with the rules
There are rules which can trip you up and land you with fines so make a check that you know what they are and how to monitor them.
Does HMRC know what you are doing? If you have become self employed you have to register for Self Assessment and Class 2 National Insurance. You must do this by 5th October in your businesses second tax year. You could be fined if you do not. Self Assessment Tax Returns are due by either 31st October (paper forms) or 31st January (online) following the end of the tax year. Payment of any tax owed is also due on 31st January.
Do you have anyone else working with you? If you have employees then you must register as an employer with HMRC before the first payday. There are also rules to consider around contractors if you are doing construction work. The 'Construction Industry Scheme' (CIS) requires checks to be made of contractors before taking them on and you might need to deduct tax before paying invoices their invoices.
Do you need to register for VAT & Making Tax Digital? If your turnover goes over £85,000 on a rolling 12 month basis you must register for VAT and probably for the government 'Making Tax Digital' scheme as well. Again there are penalties for failing to do this at the right time.
Get a separate business bank account
If you haven't got one already - do it now! Yes there are banking charges to consider so you will need to shop around for the right product for you, but it will pay for itself in the end. There is huge effort in untangling personal and business transactions which you will have to spend valuable time on plus potentially pay a bookkeeper or accountant to help you. Keeping everything separate reduces the risk of error and it also means you have much more scope to automate your record keeping. Your business bank account can be connected to bookkeeping and accounting software so transactions are automatically recorded.
Make good record keeping a habit
You need to record all your business income and expenditure. Good bookkeeping from the start will not only help you to keep on track of your finances, you will need to be able to demonstrate your financial position for any loans, overdrafts or grants you may want to apply for, and of course you will need it to work out how much tax you have to declare and pay. Our top tips for good record keeping are:
Get a separate bank account for your business. Yes it's worth repeating. This ensures your business transactions are separate for your accounts and tax returns.
Set aside some regular time to keep on top of things. Don't store it up - it just makes it harder.
Use technology to help you. There are great receipt & invoice capture apps and integrated bookkeeping software which make this really simple. There is no need to hoard shoe boxes full of receipts all year long - you can keep track of your financial position real-time - and your accountant can monitor it too. We use Xero and Hubdoc together to keep our clients books tip top and fully automated.
Don't get caught out by unexpected costs. For example, you will need to plan for your tax bill. Keeping a simple budget and forecast means you always know what is on the horizon and there are no nasty surprises.
Monitor your debtors. Cash flow is king and doing a great job for someone doesn't help you if the money doesn't come in. Set alerts so you know exactly what is due and which customers are overdue and follow up at regular intervals. Again software like Xero can do this for you.
Keep your records safe. With online accounting software all your records are safe in the cloud meaning you (and your accountant) can access them anywhere. They can also ensure you are ready for 'Making Tax Digital' - the governments programme for automating tax collection.
Finally - Seek Help
It's possible to do all of these things for yourself but have you really got the time and energy? At some point it is likely you will need the help of an accountant. A good accountant will walk you through all of these considerations and help you work out which parts can be done by you, perhaps with the help of software and apps; and which tasks it is better to hand over. They can also make sure you avoid any pitfalls and ensure your business is structured in the way that serve you best. Here's a great article from Xero on when to hire an accountant and how they can save you time and money. https://www.xero.com/uk/resources/small-business-guides/accounting/when-to-hire-accountant/