To demonstrate our chosen topic: bad bookkeeping, let’s consider the following scenario.
Picture the scene: a taxi has just pulled up to take you on a night out.
The driver honks his horn impatiently, and suddenly, you realise you’ve lost your wallet…
Note: This week’s post comes courtesy of the accounting experts at Crunch, find out more about them, here!
The problem is, your home is a bit of a mess; there’re dirty cups and plates taking up space, your kids’ toys and clothes scattered around, and who-knows-what-else is strewn about through the rooms. You don’t even know where to begin looking to find it!
Now imagine the taxi is a tax deadline, the driver is HMRC, and your wallet is an un-reconciled receipt. Your messy home is your attempt at bookkeeping.
It’s pointless pretending that bookkeeping is a fun way to spend your time when you’re running your own business. However, if you don’t keep on top of things, you’re setting yourself up for one almighty fall when the taxman comes calling. Bad bookkeeping can be costly…
If your bookkeeping is a mess, let’s explore what you can do to get on top of things:
1. Avoid bad bookkeeping by getting on with it early and oftenBookkeep early and often
The key to great bookkeeping is consistency. Set aside a period of time, either every day, or every week, and stick to it.
Whether you’d rather spend 15 minutes at the start/end of every workday, or dedicate a couple of hours on a Friday to record all of your transactions for the week, find a rhythm that works for you and hold your own feet to the fire.
Failure to maintain a regular bookkeeping schedule could see you paying more in tax than you need to. Or worse, being penalised by HMRC for submitting a late or incorrect return.
2. Don’t cross the streams
We highly, highly recommend to all of our clients that they open and maintain a business bank account when they start trading.
The last thing you need when you’re poring over your records and receipts is for there to be any doubt in your mind which purchases were personal, and which ones were for your business.
Remember: to claim something as a business expense, you have to prove your purchase was “wholly and exclusively” for business purposes. Having separate personal and business accounts will help you keep track of what you bought and make it easier to see why.
If you can, sign up for Open Banking and link your business bank account to your online accounting software to make bank reconciliation as simple as possible.
3. Use a debit or credit card
This ties back into the importance of having your own personal and business bank accounts.
If you use the debit or credit card associated with your business bank account to make all of your purchases, you’ll have a much easier time keeping track of what you’ve spent, and where you’ve spent it.
Ultimately, it’ll make your life a heckuva lot easier when it comes to recording and reconciling your expenses.
Bear in mind that in some cases it might be sensible to use a personal card.
For example, if you get the bus every day and pay for it personally, you can add up the total and then claim this as a business expense once per month. In this instance, paying with a company card means adding a separate record for every payment.
4. Keep digital records
Back in 2019, the government launched their Making Tax Digital (MTD) scheme, aimed at turning HMRC into the most advanced tax administrators in the world. In real terms, MTD laws now require you to file certain tax returns online.
Over the course of the next few years, more and more tax returns will fall under MTD rules, so if you’re still using a pad and pen, you should think about transitioning to online accounting software as soon as possible.
Beyond the implications of non-compliance with MTD, keeping digital records is the simplest and greatest way to really take control of your bookkeeping.
HMRC may, on occasion, wish to investigate your business—if they do, they require you to keep at least six years of business records, which is much easier to store online than in a dusty crate beneath your bed.
If HMRC ever asks to see receipts, you’ll be in some seriously hot water if you don’t have anything to provide. Given how easily printed receipts can be lost, torn, or simply worn out over time, it’s better to store them digitally rather than rely on a shoebox like your grandparents used to.
At Crunch, we have our very own receipt-scanning app called Tripcatcher, which allows you to take a photo of your receipt and automatically upload the details straight into your accounting software.
Even if you’re not with Crunch, though, you could consider using something like Dropbox to help keep things organised. Nothing can beat a comprehensive online accounting platform that syncs data to your account with just one snap of a camera, but even an Excel spreadsheet is better than nothing!
We also offer a software-only online accountancy solution for those who are comfortable managing their own accounts, or those who already have an accountant. It’s known as Crunch Free, and it’s a super-easy way to start keeping proper records of all your invoices and expenses on a professional, secure platform.
This leads us nicely on to…
5. Get an accountant or hire a bookkeeper
Now yes, you could be cynical and say “Of course an online accountant is going to say that you should get an online accountant!”, but it’s the truth! A good accountant can help you get control of your business finances and take the strain for you, so you can focus on doing the work you love.
It makes sense to consider appointing an accountant the moment the toiling over your paperwork costs you business or takes up too much of your time. By putting an expert in charge, you’re freeing yourself up to run your business exactly as you imagined it, without all the complicated number crunching getting in the way.
At Crunch, our complete online accounting software and service packages include your own team of client managers and accountants. Our team is available any time you need them to help answer your questions, support your business, and even file some of the biggest tax returns of the year—such as your Self Assessment—on your behalf.
If you’d like to learn more about Crunch and how we can help you take control of your bookkeeping, visit us today and book a callback with one of our friendly advisers.