Understanding the ins-and-outs of bookkeeping can help you feel less stressed and earn more. I understand that people don’t think it is an easy thing to do but once you get the hang of it you will wonder what took you so long. It’s a good idea to do this when you are first starting up so that you can understand the basics before things get more complicated.
Even doing the first task, and mastering it every month, will help will give you confidence about your money Here are some simple tasks for you to do every month (or more often if the volume of transactions is high).
1. Use simple bookkeeping software or use excel spreadsheets. My favourite software is QuickBooks and it has different levels depending on what you are doing and how you are set up.
Whichever kind of method you use; it is essential that you take backups that are then stored somewhere separate from your computer. This way, if your computer or software breaks down you can restore your information without too much worry or stress.
Make sure that you review your bank accounts every single day if possible. (Weekly or at the maximum monthly, if there are very few transactions.) However often, make sure that you build it into your routine and that it is done regularly. Keep in mind, however, that a lot can happen in one day with a business bank account. Keep all of your business and personal bank accounts separate, including your savings accounts and credit cards. This way you’re able to organise all of your business transactions separate from your personal bills. Even if you’re not a Limited Company, and are only a sole-proprietor or self-employed, open a second account and mark it for business-only transactions. Review all of your account balances regularly, so you know how much money you have, and where it’s going.
When deducting business expenses, you have to be able to prove that the cost was business related. The best way to do this is by saving and verifying your business receipts regularly. There are multiple ways you can do this:
Every week go through all the receipts, verify the amounts and expenses, and pay credit cards & bill for the week/month. All receipts related to your business are put into a folder that is created at the beginning of each year. This makes it easy to save tax-related receipts, income statements from client payments and other documents, that will be needed when taxes are filed.
Take time to have a quick check-in with your business finances every week. Look at the big picture. Is your income still enough to cover your bills, and pay your quarterly VAT?
Verify all your bank accounts, retirement balances and your debts. Are you making progress, can you afford to pay more and still cover expected bills? Do not miss out on this time, as it’s extremely important for keeping your business running smoothly.
Again, set aside a time during the month to bill out all of your work. And don’t forget to send follow-up emails to clients who are overdue. Making this part of your regular bookkeeping routine will allow you to feel more comfortable with asking for money, as well as increase your cash flow.
Another important bookkeeping task to do every month is set aside money for quarterly VAT. This ensures you are not building up debt which may not be able to be covered in the future. It’s a good idea to calculate each month instead of waiting until the end of the quarter. Why not calculate your quarterly taxes as you receive the funds, and then transfer it into a separate bank account to keep it separate from the main account? You could also do the same towards saving for possible year-end tax by putting aside about 20% of income.
This way you won’t accidentally spend the money that’s due to HMRC. You definitely don’t want to owe them money.
At the end of every month perform a quick review of my financial progress and look ahead at the upcoming month. It’s extremely difficult to plan ahead when you have irregular income, but there are things you can do to help ease the inconsistency.
If you don’t feel comfortable with doing all of these bookkeeping tasks yourself, at least now you know what exactly you can outsource to a VA or qualified bookkeeper.
Start small and work these accounting to-dos into your regular business admin tasks. You’ll be surprised how, just keeping an eye on your money will really help increase your cash flow and your bottom line. The more you know about your finances, the better decisions you’ll make and ultimately be more successful.