Do you own a small business? Setting up a new venture or business can be exciting but there are certain things to look out for. First things first: Get the basics right from the get-go.
The heart and soul of any business is the financial state. In order to succeed you need to get your bookkeeping and finance set up correctly. In this article, we will go through the essentials of bookkeeping for small businesses.
Bookkeeping 101
As soon as you start making money on a service or a product, the government will make certain demands on you. To make sure you are on top of things at any time, you should start bookkeeping as soon as possible. This includes tasks like invoices, recording expenses, monitoring outgoings and paying employees.
Bigger businesses are required to keep accounts. If you don’t have the time to manage the accounts yourself, you should get an accountant to do the job for you.
Keep your receipts
The first step is to make sure that you keep all receipts and payment documentation. Log the amount, date and purpose of all expenses. This will make the annual reports and accounts a lot smoother to submit. What kind of system you choose to use is entirely up to you, but it goes without saying that bigger businesses should invest in a more sophisticated system.
You should log all expenses monthly.
Annual accounts
Every year, you need to present the financial performance of your business in a formal record. This must include sales, costs, assets, and equity. The due date for this may vary according to your business and country of operation but is usually set during the spring.
The annual accounts are public information and aim to provide transparency in the market and give useful information to future employees. People who are applying for a job at your company or investors might find it useful to look through your annual accounts.
Annual report
Larger businesses must also prepare an annual report, which is a financial statement in addition to the annual accounts. This must be approved by the board of directors or another corresponding body lo later than six months after the end of the financial year. The annual report documents the developments in the business, as well as the future outlook.
If you are a small company covered by the accounting obligation, you most likely won’t need to submit an annual report.
VAT
Larger businesses will also be required to register for VAT. In the UK your annual turnover must be £85,000 or more, but the exact amount varies from country to country. If you are required to register VAT, you must add 20 per cent to your sales invoice values.
This means you can also reclaim any VAT you have paid on business-related purchases and expenses. All VAT payments and returns are due on a quarterly basis.
Hire an accountant
By using a professional accountant you are guaranteed that all accounts are according to the law. In certain businesses there are a lot of grey areas when it comes to taxes, so be sure to have all accounts counted for.
An accountant can help you out when the workload gets too big. Often it’s a good idea to hire an accountant during stages of growth in your business. An account can handle a wide variety of tasks, from making a business plan and filling out a loan application to doing the annual tax audit.