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Keeping business records is a must for any business owner, whether you are a sole trader, limited company contractor or in a partnership. And it makes sense to keep good business records in order to stay on top of your accounts and ready for the yearly accounts and tax returns.
The benefits of keeping good records means that when it comes to submitting your tax return, you’ll have the necessary information to complete the forms with little hassle and pay the correct amount of tax on time.
With Making Tax Digital now in play, you do not have to keep paper records, everything can be completed and stored online with the use of online accounting software and mobile apps. Just ensure that if you opt for digital records, you keep a backup of everything!
It can be daunting at first to keep records but once you get into the swing of doing it and used to what is needed and required, it becomes easier to manage.
The basicsAn income statement shows the income and expenses of the business for a given period of time.A balance sheet shows the assets, liabilities, and your equity in the business on a given date.
The first steps to keeping good business records comes with breaking each part into manageable tasks, for example:Keep receipts of all business expenses and record them into your online bookkeeping system.Keep track and record business mileage as and when you travel.
Stay organisedManaging records well could be the difference between a win or lose with potential clients. By sending quotations, estimates and invoices in a timely manner, you’re showing that you are organised and run a business well. This is applicable on the flip side too, when you owe suppliers money, be prompt in paying.
By being organised and keeping good records it can be easier to find something when you’re looking for it. If a client disputes an invoice or a payment hasn’t been made, you’ll know exactly where to go to find the records.
Plan for tax paymentsIn your first year of trading you will need to estimate the amount of tax you’ll be required to pay. This will mean putting aside money each month to cover the bill that is to come. Keep on top of your records and payments to know how much money you have and are putting aside. Once you pass your first year and have an idea of how much you’ll be paying, you can regularly have that amount delegated from your everyday funds. Tidy books is good preparation for knowing what funds can be allocated into which pot and what you can afford to spend (or not!).
Tax ReturnsWhen it comes to the tax return season you will be thankful for keeping good records as it will make the process so much easier. You will have all the information laid out in front of you ready to complete the form with little hassle. If you struggle to keep up with the books, you will struggle to complete the tax form swiftly which could result in spending more money asking an accountant to untangle the mess for you.
Avoid penaltiesDon’t be fooled into thinking that it doesn’t matter about keeping records and submitting tax returns, there is a penalty if you are late in complying and these won’t be disappearing anytime soon.
Keep business and personal separateWhen it comes to your finances, and especially when you are first starting out, it can be easy to pay for things personally or get business and personal funds mixed up but start from the very beginning to make a conscious effort to keep them separate. Set up a business bank account and have all your money come in and go out from there. It will be neater for the yearly accounts, it will be easier to prove finances to HMRC if required to do so and from the very outset you will have a separate place you know if ‘business’ without the confusion of trying to work out what’s what.
Some people just find it preferable to hand their finances over to an accountant, knowing that everything will be taken care of so they can focus on building and growing their business. If this sounds like you, we’d love to chat with you.As limited company contractor specialists, our team understands how you operate and the importance of providing a transparent service that offers complete peace of mind and assurance that you're never alone. Our online accounting software provides a clear view of your company's financial position, showing company profits and provision tax liabilities, as well as providing guidance on what you can take out of your company. With our team on hand to advice and guide whenever you need them, it pays to go with 2020 Accountancy. Get in touch for more information.