Keeping your accounts and records in order can seem a little… tricky. For the self-employed, when income and outgoings are not always regular, if you allow enough time to pass, it can very suddenly look like an endless sea of invoices, receipts, and paperwork. How are you supposed to remember what every transaction was for? Was it in this tax year? Can I claim this on expenses? And that receipt from nearly a year ago has faded so much you can’t, for the life of you, decipher this glyph?!
So where do you start?
- Regularity – One of the key elements of good record-keeping is regularity. Set time aside, perhaps once a week or every two weeks. Breaking it down into small, manageable amounts of time can make everything vastly easier on yourself in the long run.
- Systems part 1 (Spreadsheets) – The first thing to do is find a system that works for you. A good old Excel spreadsheet is often your best friend. Have a tab for Income, Expenses, and perhaps a Summary page.
- Income – HMRC wants to know where you received your money from. Have a column for Date, Invoice Number, Client/Customer (i.e., WHO), and the Amount. If you are VAT-registered (you will need to be if you turn over £90k in a year), you should also break down your income to include columns for the Net, VAT, and Gross amounts.
- Expenses and Costs – Keeping track of these is probably one of the fiddlier bits. These days, it is so easy to spend – a quick tap of the phone, websites remembering your payment details – that it’s easy to lose track of your spending. Your spreadsheet should have another tab for expenses, with columns for Date, Supplier, WHAT IT IS, and Amount. Like with income, if you are VAT-registered, break down the expenses into Gross, VAT, and Net columns.
- Systems part 2 (Software) – One thing we recommend a lot for people who struggle with this sort of record-keeping, or have a lot of transactions, is using accounting software such as Xero. It is incredibly user-friendly and can really help you keep things organised. An additional feature is the ability to link your bank account feed. This leads us to the next point:
- Bank Statements! – It may be the case that you have one bank account, one card, that you use for everything: personal use, business expenses, income… then you look at your bank statement and it’s just a sea of abbreviations. We strongly advise opening a bank account solely for your business income and expenses. Some of the most time-consuming parts of record-keeping are going through your bank statements, attempting to decipher a series of letters and numbers and working out if it was a key bit of repair work for your office or just a nice fish and chips order. With the benefit of linking your bank statement to accounting software, like Xero, everything just feels much more organised.
- Back-ups – Do you keep your receipts in a plastic bag? Stuffed in your wallet? (I certainly used to do that…) In the glove box of your van? Anything can happen to them! Your plastic bag may get mistaken by someone else for a bag of rubbish and thrown away. Your wallet may rub the ink off the receipts until you are left with just a sheet of paper that is as much use to you as a piece of loo roll. The glove box of your van? A stray breeze (or some mugger called Storm Bert) could do away with them in a second. You get my point. You need to keep them safe. Keep. Backup. Copies. If you’ve got a scanner, scan away! Save them in a folder. Don’t have one? TAKE A PHOTO. For storage of the original, even just a little Tupperware container with a label on can keep those precious receipts safe. I know I’m labouring the point a little with my Preservation of Financial Transactions (POFT for short; I’m working on the acronym) crusade, but if you keep your records safe, you keep yourself safe.
Man, seems like a lot of effort, right? As I said in point 1, regularity is the key. Just a little time set aside every week or two can turn that mountain of work into just a series of molehills. What are the benefits of being this efficient though? Why shouldn’t I just leave it to the end of the year, cram, and hope for the best, I hear you cry?
- Efficiency – We’ve touched on this already, but managing the records a little bit at a time saves time overall.
- Finance – Having good records can help when it comes to applying for loans and mortgages.
- Budgeting and Cash Flow – Knowing how much you are spending and receiving every month means you can set limits on yourself and your spending. If you are guessing constantly, it is incredibly difficult to manage your business.
- Tax Return Accuracy – We have to pay our taxes. It’s just the reality, whether you agree with them or not. Having an accurate tax return means fewer issues with HMRC, who always get their money. So you might as well make sure it’s the correct amount!
There must be some downsides to efficient record-keeping? Surely? Well, aside from being a little dull perhaps (unless you’re like us, we love it), there are absolutely no negatives. But hey, if it really isn’t your thing… your friendly neighbourhood Jupp’s Accountants are right here to help you out.