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Repeat after me, ‘I must keep good records, I must keep good records…’

Whatever your business structure you will need to keep financial records. Not only to keep the friendly folk at HM Revenue &Customs happy, but also to form the basis of your annual accounts. The announcement in January by HMRC that they intended to crack down on poor record keeping by SMEs, with potential fines of £3,000 was a wake up call to all businesses.

Aside from avoiding potentially hefty fines, good financial records will also help you to monitor the performance of your company and make informed business decisions. Good systems, accurate records and timely reports also result in greater business efficiency and provide you with the information you need to manage your cashflow and run your business successfully. An added bonus is that you can stay on top of those customers who seem to be allergic to paying their bills, by acting quickly.

So, where does it all go wrong for so many new businesses?

Too little too late…
With so many hats to wear as a new business owner, keeping track of your business records can be the last thing on your mind. One shoebox of paperwork turns into two, then three and gets relegated to the back of the darkest cupboard in the office, in the hope that it will simply go away. Before you know it, you have a full year of records to catch up on, a tax return deadline looming in one weeks time and you’ve lost control of your finances. The solution is simple, tackle it regularly, a little bit each day, week, or month and it won’t become such a monster task.

Mixing business with pleasure…
It pays to keep your business finances separate to your personal finances. As a limited company you are required to have a business bank account so mixing your finances will not be an issue. If you are a sole trader or partnership then setting up an account for business transactions would be recommended, even though you do not have to. It makes life a whole lot easier when tax return time rolls around as you do not need to sift through a mixture of personal and business transactions. It doesn’t have to be a business bank account, if you have an unused personal account why not start using it solely for your business transactions?

All jumbled up…
“I keep everything in one file, I’m just not sure where”. Keeping everything in one file is fine if you have a very small business with few records, provided you have a good referencing system within that file. In reality, businesses will need a few files, for bank statements, purchase invoices, sales invoices, credit card statements etc. Keep paperwork in order within these files, for example : file bank statements in date order, file purchase invoices by supplier name or give each invoice a reference number perhaps.  This makes it quick and easy to identify missing documents, such as bank statements and purchase invoices. Obtaining copies further down the line can be difficult if you leave it until your year end to sort your filing out!

I have all the figures in my head…
Not an ideal scenario when it comes to credit control or monitoring your cash flow! It pays to set up a computerised record of your financial affairs. We all have off days and relying on poor manual records and memory can lead to financial disaster. The software doesn’t have to be sophisticated, a simple Excel spreadsheet will suffice for a smaller business and will take the headache out of the addition at least and will provide a summary of income and expenditure. The information you then pass to your accountant / bookkeeper will be concise and formatted, cutting down on the time they spend preparing your accounts / tax return and ultimately their fee.

I’m too busy to ask for help…
Busy business owners are just that, busy. Which could mean you are struggling to find time for the ‘record keeping responsibilities’ associated with running your business. Similarly, if you are spending a good chunk of your time trying to stay on top of your paperwork then you could be costing your business money in terms of time spent, when you could be generating business.

In either scenario it could be cost-effective to appoint a bookkeeper or accountant to handle the paperwork and number crunching for you. Ask them to set up a system that is right for your business, as this will enable them to prepare your year-end accounts speedily and most importantly, accurately. Afterall, keeping detailed financial records is the foundation upon which a solid business is built.

Images provided by: Sheela MohanTung PhotoDanilo RizzuttiRenjith Krishnan, Sheela Mohan, Renjith Krishnan @ FreeDigitalPhotos.net



2 replies to “Repeat after me, ‘I must keep good records, I must keep good records…’

  1. I can never quite believe it when people say they don’t keep proper up-to-date records, or you ask someone what their profit is TODAY and they don’t know! I maintain a spreadsheet and it’s so easy – one sheet for invoices, amount charged and amount paid, a second for outgoings, split into categories; then sheet for each financial year into which these two feed, showing me my profit every day, and a fourth sheet that shows how I’m doing against my targets and against last year.

    I’m far better with words than with sums, but I set this all up, test-ran it to make sure it did what it was supposed to do … and doing my tax return is a breeze, because I have all the information at my fingertips!

    I am lucky in that I don’t have a lot of outgoings and most of my receipts are electronic, but I have a physical folder for receipts, one for HMRC stuff and one for other tax stuff like bank account tax statements, and there you go: easy.

    • Thanks for the comment Liz, sounds like you have your records in great order. Provided you are well versed on which expenses are allowable and the workings for capital allowances, that tax return will definitely be a breeze!

      You set a great example to others, being so organised. In light of the fines and penalties which can be imposed by HMRC for late or inaccurate returns it pays to get it right first time!

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