5 Essential Bookkeeping
If you’re a sole trader you do not have to have a separate business bank account. – BUT IT WILL MAKE YOUR LIFE SO MUCH EASIER if you do.
If your business is a limited company, you MUST have a separate bank account as the company is a separate legal entity from you. What this means is the money is not your personal money to spend. The money is to be spent on business expenses only.
It is best to start right at the very beginning to keep clear bookkeeping records.
Bookkeeping is typically made up of 3 separate sets of records:
The cash book records everything coming and in and leaving the business’s bank account. If you use a bank account as well as cash, you would have 2 cashbooks – one for the bank and one for cash.
Your sales invoice file keeps a record of all your sales. It is best to keep unpaid invoices together in a separate section so that you can easily see what remains unpaid.
Your purchase invoice folder is for filing all your purchase receipts. Ideally, you will write on each purchase invoice or receipt the method of payment used.
All businesses have their own payments terms and conditions. Your customers need to understand what these are. Often payment terms are 30 days end of month. This means sales invoices should be paid at the end of the following calendar month. It is essential to send gentle reminders to customers alerting them to the fact that you are aware they owe you money. You can do this by sending your customers statements at the end of every month. If an invoice is overdue, you must chase your customers for payment. Some customers take it as their right of passage to not pay until you chase.
Business expenses bring down the profit of your business therefore reducing your tax bill. Therefore, keeping a track of them is essential. If this is not done correctly and meticulously you will end up paying more tax than necessary as all expenses have not been accounted for. This is particularly relevant if you use cash for some expenses, or maybe your personal bank account rather than the business bank account.
Businesses generally follow a trend. If sales are low in January 22, they are likely to be low in January 23 for example. Equally, if your insurance is due In March 22, it will be due once again March 23. This sounds so obvious, but keeping track of what is coming up will help you plan ahead and enable you to put money aside for such events.