Bookkeeping Best Practice
To run a successful enterprise and be compliant to the legal aspects of running a business, you must keep clear and accurate records of all the income and expenditure associated with your activity. In this article, we will talk about bookkeeping best practice.
Ensuring that your business has a rigorous method and system in place from the outset will make the process of accounting and assessing the finances far easier. It has many advantages … from saving you time managing your accounts to minimising costs for things such as accountants.
You can operate a manual system for keeping records but with the availability of online resources (many free) nobody really does this anymore and the ease by which information can be entered and accessed makes “electronic” methods far more user friendly for the business owner. Either way, as a minimum you will need to keep records on all sales and purchases (ledgers) as well as monitoring cash (cash book). In addition, if you are employing people, your financial management system will need to include a payroll/wages book.
There is a vast selection of software packages, apps and computer based spreadsheets which provide everything required for bookkeeping best practice. They can allow for much greater effectiveness in running your business in this aspect.
The key thing is to ensure you have a system which works for the type of business you are in (not too complex : not too simplistic). It needs all the functionality you require to manage your business finances. Most accounting packages for small business are very easy to use, even for the inexperienced, and they will allow users to monitor and manage every aspect of the finances within the business.
For many people, when starting a business, this kind of financial management can seem daunting but having a system in place that works for you, maintaining the correct records with the required level of accuracy need not be an ordeal if you follow bookkeeping best practice.
It is essential to get this right to ensure you can properly monitor your cash flow but it is also a legal requirement that all financial records for a business are kept for a minimum of six years.
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A basic set of accounts will, in theory, require the following separate books (computerised systems manage all this complexity for you) –
- Cash Book – this records all money coming in and going out of the business.
- Sales Ledger – records all sales made (invoices raised), monies received and debts still outstanding.
- Purchase Ledger – purchases made (invoices from suppliers), monies paid out and monies still owed.
- Wage Book – if you are employing people (including the owner of a limited company). This would record salaries, PAYE, NI contributions and any other remunerations (vehicle allowance for example) or deductions (pension contributions).
(it’s also good practice to record drawings if you are a sole trader with no employees)
With a new start enterprise it is often the case that you may feel that your time is better spent focusing on the marketing and selling of the products or services you provide. However, having a good bookkeeper or accountant can be extremely valuable to the business and they should easily pay for themselves in the amount of time and effort they can save.
The main thing is to ensure they are qualified and competent because, at the end of the day, they are managing your money and they will follow bookkeeping best practice. If you provide them with the right information, they can ensure records are accurate and well kept. They will also prepare your accounts in regard to tax, VAT returns and many will also run your payroll for you. They can also add a considerable amount of value providing advice and guidance which will help manage your business finances and identify potential issues.
Alongside the accounting and bookkeeping, you do need a dedicated business bank account to manage your business finances. If nothing else, you can access resources for your business (finance, advice etc) which is only available to you as a business customer. In addition, this will start to build credibility and a credit rating with your business bank which will be essential for the future if you are looking to expand/grow and you will require the banks support to do it.
We strongly recommend that you avoid using any personal banking arrangements to run your business to ensure clarity and complete transparency on what the business buys and pays for in its day to day operation and no cross over with your personal finances.
Bookkeeping is a legal requirement, but don’t get too busy doing your books and not growing your business. Professionals out there can help you.
Bookkeeping best practice advice from Yorkshire Powerhouse
Now you’ve read our article on Bookkeeping Best Practice – have you any more questions?
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