Monday, March 4, 2013

How to Keep Financial Records for a Small Business

Running a small business can be a time consuming affair. Most small business owners work long hours and the thought of doing admin work at the end of a long day is hardly a happy one. But, unfortunately, admin work is an essential part of running a business and if you fail to keep accurate financial records, you are storing up a truck load of trouble for further down the line. 

Why Do I Need Financial Records?


Financial record keeping is the best way to keep track of how your business is performing. If you have no idea how much you are owed by your clients or how much you have spent on materials, how do you know if you are even making a profit? It is also worth pointing out that keeping accurate financial records is a legal requirement in a number of countries, so if the thought of doing the books gives you a massive headache, just think about how much worse that headache would be if you had a tax audit due and no financial records of any description to hand.

What Are The Key Financial Records All Small Businesses Need To Keep?


  • Income – all income needs to be recorded. At the very least you need a cashbook that records money in and money out, but for the majority of small businesses, this will be too simplistic. 
  • Expenditure – business expenditure can be recorded in a cashbook, but you still need to keep copies of all invoices and receipts for tax purposes. Make sure you file these in a manner that makes them easy to find should it be necessary as part of a tax audit. 
  • Customer records – it is essential to keep accurate copies of orders, invoices, credit notes and anything else related to customer transactions. You need to know how much your customers owe and how long their accounts are overdue as this directly affects the rest of your business. 
  • Bank statements – always check bank statements regularly and reconcile them against your accounts. Banks can and do make mistakes, so spotting these early will save you a lot of grief (and money). 


What Happens If I Haven’t Kept Good Business Records?


The main problem small businesses have if their records are inaccurate or simply non-existent is that at some point the taxman comes knocking on their door. Since it is a legal requirement to keep accurate records, failing to keep useful accounts and maintain financial records could well end up being a very expensive mistake. 

Should I Do My Own Accounts?


If your business is very simple, you should be able to do your own bookkeeping using a simple spreadsheet programme or purpose designed accounts book. However, if maths is not your strong point or your business transactions are complex it is a good idea to hire an accountant to keep your financial records in good order. Alternatively, you could do a combination of both - you do the day-to-day record keeping and let your accountant do the end of year accounts and tax calculations.

Bio
Laura runs her own business and keeps an online blog of her experiences. She is well aware of the penalties for failing to keep accurate financial records, so she uses the services of www.liptrottandwoosey.com to help her with the bookkeeping and end of year accounts.


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