Need Help with your Financial Records?
Financial records can often be tough for entreprereneurs and business owners. Many entrepreneurs, myself included, are full of ideas but don't like doing the maths! The earlier that you can put a system in place for organizing your financial records, the better. This articule will give you basic advice on setting up your book keeping and accounts.
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Know your Legal Obligations
The most important thing in getting your finances right is knowing where you stand in the eyes of the law. Whether you are self employed, a charity or a Ltd. company will influence how you keep and submit your books. It is important that you research this carefully, as it will be vary from country to country.
In the UK, you need to register as self employed with HMRC (Her Majesty's Revenue and Customs) as soon as you start earning. You are required to file a tax return at the end of every tax year. Tax years end on 4th April every year. If you submit your return by paper, it needs to be completed before the end of October of that year. If you submit online, you have until the end of January the following year.
In the UK, you are supposed to keep a paper copy of ALL financial records for the last 7 years. So you will need to archive old records - don't throw them away!
Set up a Separate Business Bank Account
Setting up a separate business bank account will make your book keeping and accounting much simpler. Rather than sifting through endless statements looking for expenses and income, with a separate bank account it will all be there ready for you.
With most banks, including Barclays and HSBC, you can use online banking and export the transactions as an excel document or PDF. If you are looking for an ethical bank, the Co-operative bank also do business bank accounts.
Book Keeping using Spreadsheets
Excel is a great spreadsheet to use for book keeping when your business is small. The basic columns that I use are as follows...
- Invoice number
- Amount (incoming and outgoing columns)
- Tick when filed
There may be other columns that you need for data specific to your business. Make sure that whenever you raise an invoice or receipt, put an invoice number and date on it, and print and file an electronic and paper copy.
Many people start out in business without realising that they can ofset their business expenses against tax. Basically, keep every receipt. There will be the usual business costs such as freelance services, website domains and premises. Then there will be things that you tend to pay for without realising that you can put them through expenses. If you buy a new desk or a new computer for your office, it's a business expense. If you take a client for coffee to secure a business deal, or buy stationery, again keep the receipt.
You may even be able to claim some costs such as electricity and office space for a home office, and transport or car use, but check this with a professional accountant first.
It is very useful to have an expense form, which you can fill in as an A4 page explaining what the receipt is for and stapling the receipt to the form. Little bits of paper get lost easily, and you can end up losing out, so this is a good system to have. Pre-print 20 or 30 expense forms and have them ready on your desk so that you can add the receipt immediately and file it straight away. Much better than having a bunch of receipts from the last three months and saying 'Ooooh, I wonder what that was for?!'
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Filing is essential for organizing financial records. Your book keeping is best filed by tax year e.g. Tax Year 2012-2013. You will need to print out the transaction list from your bank records or your spreadsheet/electronic records. Monthly dividers are great - make sure things are in date order. Put the transaction print out at the start of the year file and use it as a check list. There should be a piece of paper evidence (e.g. invoice or receipt) for EVERY transaction both incoming and outgoing.
Needless to say that if you get behind on the book-keeping, it can get messy! I once met a guy who was three years behind. I have no idea how he dealt with it, or even how he got away with it!
Using Online systems
As your business grows, it may be easier to use an online system. Many systems can automatically generate invoices for regular monthly clients, easing your workload. Some systems, such as Zero can even be setup to automatically take payments from paypal.
Cheapaccounting offers a cheap service with an online record system that works for both self employed and limited companies. You simply enter every incoming and outgoing transaction into the system. The advantage of using this is that it can categorise your incoming and outgoing payments. This will allow you to see how much you have spent on premises or expenses annually, for example. It will also look at profit and loss and automatically develop tables for analysis by you and your accountant.
If you are getting to the stage where you have regular monthly incoming transactions, you may want to get your clients to set up standard direct debits.
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