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Business start up – bookkeeping basics

Business start up – bookkeeping basics

Business start up bookkeeping basicsWhen people start up in business they are usually motivated by the possibility of making money out of a good idea. A few may be in business as a hobby or for philanthropic reasons but let’s face it, why would you go to the lengths required if there is little money to be made? If the primary aim of the business is to turn a profit, therefore, it would make sense to have a good grip of the financials – especially cash flow – from the outset. However, many new business people lack the skills and confidence to establish good bookkeeping practices from the outset. Eventually, buckling under the weight of piles of receipts and imminent tax self assessment they call on a local accountant to sort out the mess – at a significant cost to the nascent business. Here are some tips which will set you off on the right track.

Get organised

  • If you’re doing it the old fashioned way, buy an analysed Cash Book and a file with some dividers .
  • In the Cash Book, keep a record of all payments, separating out VAT if relevant. Enter each against meaningful expense accounts so that you can analyse your outgoings. It is sensible to use the expense categories that HMRC understand.
  • Keep a record of all receipts, again separating out VAT.
  • File invoices sent out (under Unpaid Invoices) which can be totted up to give a debtor (accounts receivable) figure.
  • Once an invoice has been settled, move it to the Paid Invoices folder.
  • File bills received (under Unpaid Bills) which can be totted up to give a creditor (accounts payable) figure.
  • Once a bill has been paid, move it to the Paid Bills folder.
  • Keep all bank statements and regularly reconcile these with your Cash Book.
  • If you are keeping stock, record when any item was bought and for how much, including any additional capitalised cost (delivery costs or repair costs for example.)
  • When stock is sold, record how much it sold for. The difference between what it sold for and how much its capitalised cost was is the gross profit you make on the sale.
  • If you pay for expenses in arrears (electricity etc.) note the period which a bill payment covers. This can be used to work out how much your business will owe even if you haven’t been billed (known as an accrual.)
  • If you pay for expenses in advance (rent etc.) note the period covered; this will allow for calculation of prepayments.

Let the computer take the strain

Manual bookkeeping – even the single entry system described above – is time consuming and prone to errors. It is reasonably straight forward to transfer a manual system on to the computer so that calculations can be readily carried out and analysis made. Excel templates exist (both as standard templates and others that can be downloaded) which will replicate a single entry system as well as others which will prepare Profit and Loss accounts and a Balance Sheet.

At Nortical we recommend the QuickBooks suite of small business accounting software packages. These include the cloud QuickBooks Online versions which allow busy business people to constantly update their books from their phone or tablet. Alternatively, the more powerful desktop versions are comprehensive and intuitive to use. Given that cash flow is all important, QuickBooks allows you to see immediately if your business is healthy or if you are in danger of becoming a business failure statistic.

Business start up – bookkeeping basics

 

 

 

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