Regardless of how you have decided to set yourself up in business, you will need to keep records of your business activity
Some of these records are required by law whilst others are designed to help you plan and run your business better.
Record Keeping Principles
It is very important to set up a record keeping system and keep all records and supporting documents for 6 years where required to do so by law.
You should organise your records into accounting periods. These normally last for 12 months although they can be for longer or shorter periods. HMRC suggests that you try to keep them in line with the tax year. For example, you close your accounts on 5 April to coincide with the end of the tax year, but some firms choose to organise their records by calendar year and others still link to when the business was set up. Check with your accountant what they recommend for you and your business.
You must differentiate between money spent on the day to day running costs of your business and the purchase of equipment (assets) which is called capital expenditure.
Records you are required to keep
You would normally be expected to keep full records for 6 years of:
- All your sales and takings (turnover) keeping copies of invoices and receipts
- All your business expenses and purchases, and keep receipts for all expenses paid including purchases of stock and materials
- All bank deposits and withdrawals including cheque stubs and paying in books
- Your ‘wages’/drawings and amounts drawn out of the business for personal and family use
- Mileage records
- Capital items; keep a separate record of all purchases and sales of business equipment, machinery and vehicles, together with the receipts
- Where expenses relate to both business and private use, only the business part is allowable
- Keep a record of the market value of equipment or vehicles introduced into the business that you owned before starting your business.
Managing your records
Business records can be kept manually, computerised using standard software such as Microsoft Excel, Microsoft Access or Google Sheets; or you can subscribe to professional accounting packages that manage everything from expenses to timesheets, invoicing, bank reconciliations and even tax and VAT returns.
Some of the leading accounting software includes: –
What to look for when choosing software
Before you select any paid for software, its important to think about your needs as well as any other systems you already have in place to help you run your business. For example, if you have an online booking system or electronic point of sale system in place to help you manage your inventory as well as your sales, or even an e-commerce element to your business then you may want to ensure that any accounting system links in with these.
Does the system link directly to your bank so that you have live data and can automate tasks such as bank reconciliations?
You also need to consider how you operate and whether you need the functionality that some of the more expensive packages offer. For example, a small bed and breakfast probably doesn’t need to raise purchase orders when buying goods and services, but this might be useful for a restaurant or hotel.
You’ll need to consider who will use the system. For many businesses it will be just the person responsible for the ordering and payments – whether a specified accounts person, an administrator or in many cases the business owner. But for organisations such as events companies, it’s likely that you will want your staff inputting their time and expenses directly onto the system and managing their project’s budgets through the system. In these instances, you will need a system that doesn’t penalise you the more people you provide access to, and you will need to ensure you can restrict access at various different levels throughout your business. It’s also worth checking whether your accountant (if you use an external firm) is familiar with the software and if not, if they are happy to learn how to use it. Many accountants focus on a maximum 2 or 3 of the better known packages and prefer to stick with these.
To make the most of your software, you’ll want to think about the type of reports that would be helpful for you in your business. For example, would it be helpful for you, at the touch of a button to see which of your customers are generating the most net profit for you? Where your biggest expenditure is each month, or perhaps you want to see which of your team are working most productively or what your stock levels are.
Also consider if you have any special needs. For example, if you buy or sell goods across borders, do you need to work in multi currencies?
And of course few of us started a visitor economy business so that we could be finance or computer software geniuses and so we need to make sure the system is simple to set up and simple to use. Can your existing data easily be imported? Is there support provided from the company to help you get started and to help train you / your team? Is it simple to customize everything for your business (i.e. invoices, reports, purchase orders etc)?
And finally, and possibly the most important questions are, what are the costs (for set up and on-going); do these include support and what type of support (i.e. on-line or in person) and how long are you locked into using the software for? And if you do decide to change to another system further down the line is this software compatible with most others?
The types of things you might want your software to help you with include: -
- Basic bookkeeping including bank reconciliation
- Forecasting and budgeting
- Managing cash flow
- Completing and filing VAT returns
- Stock control
- Managing payroll and employee expenses
- Managing and monitoring time
- Project Management
- Up to date key management information
If in doubt – check with your accountant and seek their advice. Better to pay now for half an hour of your accountant’s time than adopt financial software that doesn’t suit your needs and which costs an arm and a leg to boot.
