Are you a trades business who isn’t VAT registered and therefore pulls together all their accounts paperwork for their business in one go? You then either experiences the pain of entering all 12 months information into a spreadsheet or deliver it to your bookkeeper or accountant just before the year end?
Do you have a family member or friend who helps you with the bookkeeping on an adhoc basis?
Perhaps you are someone who really doesn’t like doing their bookkeeping and puts it off and avoids doing it for as long as possible.
Perhaps you don’t really see why it needs to be done regularly.
Well, I’m hoping that this blog will encourage you to see this differently.
There are two great reasons why regular bookkeeping is critical to your business.
The first reason is that you will have a better business if you do and the second reason is that the HMRC are going to require you to submit your tax return quarterly. So, let me explain further ……
BIG REASON 1: YOU WILL MANAGE YOUR BUSINESS BETTER AND BE MORE PROFITABLE
We would imagine you are pretty busy in your business looking after your customers (domestic or commercial) but if you are leaving your accounts to be done just once a year, this means that you don’t really know how your business is performing financially during those 12 months (although you may think you do). You are probably relying on what you can see in your bank account or on some information that you keep on the work you are doing.
Without your full accounts, it means that if there are issues to be addressed in your business then you could be leaving it too late to alter the course you are heading in.
Consider this – regular monthly or quarterly bookkeeping means you can see how much income you have and identify action needed, review your expenditure and adjust it if needed, work out how much profit you are making and whether your pricing and margins are right for your business and allows you to identify any themes or issues and to plan ahead. To give you an example, one of our trades clients uses the monthly bookkeeping information to be continually reviewing the profit margins on each job to ensure he is profitable and examines his accounts every month to make sure that his expenditure isn’t getting out of hand. This gives him peace of mind because he knows that there won’t be any unexpected surprises which catch him out financially.
Basically, if you have regular information you can make better decisions in your business which means that you will become more profitable.
I know this sounds a bit depressing but if you don’t know how your business is doing, then you are at risk of losing it because you may not notice problems which are arising and have time to resolve them before your business really suffers.
So, as you can see, if you are serious about running and maintaining a profitable business, it’s really not an option to rely on irregular or yearly bookkeeping and accounts.
BIG REASON 2: THE NEW ‘MAKING TAX DIGITAL’ REQUIREMENTS WILL MEAN QUARTERLY REPORTING TO THE HMRC
The new Government Requirements mean that you will no longer be required to submit tax returns just once per year. There will be a quarterly submission required which therefore means that you need to have your bookkeeping up to date.
If you are a sole trader or partnership that isn’t yet aren’t VAT registered, you are likely to become liable for the Making Tax Digital requirements from April 2018. If VAT registered, it would be from April 2019 and if you pay Corporation Tax then you will be eligible from April 2020.
There isn’t much detail on exactly how this will work but we do know that the Government will want your income and expenditure entered into a software which can be uploaded to your digital tax account. So if you have a bookkeeping software in place then this is likely to be able to handle it for you. Alternatively, there may be free softwares or apps designed specifically for this.
So, if your business does not currently use a dedicated accounting software package and you aren’t already doing at least quarterly bookkeeping, it is really worth considering this now and getting set up ready for this.
I hope that by reading this blog, you are now keen to take action and to at least do your bookkeeping quarterly – although monthly would be the ideal scenario. So, what should you do now?
- Decide whether you are going to do the bookkeeping yourself or to get someone else to do it for you. Only you know whether you have the time, skills and commitment to do your own bookkeeping or not. If not, then just find a good bookkeeper to do this for you.
- Get organised and start to organise your paperwork by month – receipts, bills, invoices, statements etc. Make sure you have a system for making sure that you keep all the paperwork that comes in – via the post, by email, must be downloaded from supplier websites or can be found in your pocket, vehicle or wallet.
- Talk to your accountant and other experts to explore what software you will use for your bookkeeping.
- Get your bookkeeping software set up (again this is something you may want to get a good bookkeeper to do for you) as it is important to get this right.
- If you are going to be using the software just to raise sales invoices for your clients or to do your bookkeeping in full, get yourself trained on how to use it so that you don’t make mistakes which could cost you dearly later on. Many of the softwares provide great online training or if you learn better in the classroom, do a workshop or some 1 to 1 training with someone who knows the software really well who can show you how to use the system effectively.
We would be interested to hear your comments on this blog. At The Bookkeeping Department, we help business owners do their own bookkeeping as well as providing a service where we do it for them. We provide training workshops and 1 to 1 training on Xero bookkeeping software. If you feel we may be able to help in anyway, please contact us for a friendly chat on firstname.lastname@example.org or Tel: 01462 455455.