There’s really no better time to devote to a spot of spring cleaning – not the ’empty out the garage’ type but the de-cluttering and re-organising of your small business bookkeeping systems.
Here are my 5 tips to help you get your ‘ducks in line’:
1. Complete your bookkeeping for the most recent tax year 2015/16
If you haven’t done so already, use this time to tie up any loose ends on the bookkeeping front. Have you recorded all your income and expenditure for the previous tax year? More to the point – can you find all your invoices and receipts for the previous tax year? Bag pockets, coat pockets, purses, kitchen drawers – pull them all out, record them on your accounting software or excel spread-sheet.
Have you been checking your accounting entries to your bank statements? This is an important exercise to carry out regularly and helps to confirm the accuracy of your income and expenditure records. If your records are ever subjected to an HMRC review, one of the first things HMRC will check will be whether you bank balance ties up to your bank statement.
If some of your business expenditure has been paid for ‘out of pocket’ or by a personal credit card, make sure these outgoings have been included as a “business expense”.
Have you updated your mileage records? Remember to record detail of all your business journeys – date, purpose, destination and mileage.
And a tip for this year – if you have a habit of stuffing invoices into various locations think about using your phone to snap a copy of the receipt or use the shoeboxed app. Just make sure you snap the back of the receipt as well as the front.
2. Set up a separate bank account
There is no legal requirement for sole traders to have a separate bank account and many sole traders conduct all their business through their personal bank account. This is fine and an easy option if you haven’t got many transactions going through each month.
Once the number of business related items going through your personal statement goes beyond the few a month, you will find your bookkeeping so much easier to carry out, if you use a separate bank account for business incomings and outgoings. If you use pay pal for business and personal purposes, set up another pay pal account.
By using a separate business bank account you avoid having to trawl through all your personal bank statements each month trying to identify (and remember) the items that related to your business. If you are not doing your bookkeeping on a regular basis this process can be incredibly time consuming and you also run the risk of potentially not picking up genuine business expenditure. Forgetting to include ALL your expenses will result in you paying more tax than you need to.
3. Review your outgoings
This is such a valid exercise for this time of year. Scan you bank statements for the previous year and review all the direct debits and the subscriptions. Ask yourself whether you received any benefits for these services, memberships or subscriptions over the last year. If not – be ruthless and cancel them.
4. Online invoicing
Are you currently invoicing your customers using a template in Microsoft Word or Excel? Even if you are only spending two hours a month on your invoicing, moving to using online accounting software will reduce this procedure to minutes.
Not only will you save previous time creating the invoice but the invoiced amounts are automatically posted into your accounting records. When you receive payment from your customers you can easily allocate the amount received to the original invoice. Customers who owe you money are readily highlighted and follow up emails are easily initiated.
Making it as easy as possible for your clients to pay you is a sure fire way of encouraging faster payment from your customers. “Pay now” buttons linked to Pay Pal or credit cards can easily be added onto your online invoices.
Accounting software provider, Xero offers all these advantages – Get paid faster with online accounting software
5. A system for recording all your accounting information
And lastly, have you got a system for recording and filing all your accounting information?
I won’t use this post to go into any depth on the merits of various systems but suffice to say that you do need some sort of a system in place for filing all your paperwork – bank statements, invoices, receipts, copy of any monthly spread-sheets, bank reconciliations. If you need to track a particular item or transaction how quickly can you retrieve the supporting documentation?
You are legally obliged to retain all such accounting records for six years.
So, after all the dusting off and polishing up on your systems, what’s next?
If your ‘ducks’ are now in line, it may be worth taking a good hard look at your finances and making a plan for the new financial year. There’s lots of help in my blog post on “7 tips to help improve your small business finances”.
If your records are up to date, consider having your tax liability for 2015-16 calculated – I can help here. You won’t need to pay any tax until the 31st January 2017 but it would be useful to confirm how much you need to budget for.
Over to you
I would love to hear about your “spring clean” procedures, anything else I’ve forgotten or useful tips you would like to add? Do leave a comment below. I would love to hear from you. And, if you’ve found this post helpful please use the icons below to tweet it, like it and share.
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Happy spring cleaning!