Accounting tips for small businesses

October 17, 2023

When you start your own enterprise, looking at tips for small business accounting probably isn’t at the top of your to-do list. It can be incredibly exciting running your own business, as you turn your passion, skills and creativity into solid earnings for you and your family. But it’s vital that you don’t overlook the day-to-day management of your finances, including wages, taxation, bookkeeping and more.

This blog is full of accounting tips for small business owners like you, so that you can stay compliant with all relevant rules and regulations, and make your administration much easier and more efficient in the long-term.

Understand your legal requirements

A good place to start is to do plenty of research and reading into what you need to do and be aware of. The Government’s website is a good source of information in clear and accessible terms: it may be worth writing out a checklist of what’s required, how and when. For example, while all limited companies can register for VAT, it’s only a legal requirement if your turnover in a 12-month period exceeds £85,000, so you may not have to register as soon as you start out. Furthermore, regulations and other thresholds (such as income tax rates) are liable to change on a regular basis, so you should always check for any changes every so often.

Keep business finances separate

If you’re starting out as a sole trader, then you may find yourself running your business incomings and outgoings through your personal bank account. While this is perfectly legal, it can also be extremely risky and make things unnecessarily complicated. If you can’t easily and clearly separate your personal and business expenditure, for example, then it becomes harder to properly make tax declarations when it comes to self-assessment. Therefore, it’s strongly recommended that you open a business bank account, and make salary payments to yourself through it, so that you have definite separation.

Stay on top of your records

Every transaction that is made involving your business has to be kept within a record. This could be a customer purchasing your goods and services, you paying for your bills and overheads, any other expenses you incur, and any wage payments you need to pay to yourself or to your employees. The tax authorities will expect to see complete records for your business transactions if they request them, so it’s vital that you update them regularly, and backup any files you have so that they don’t get accidentally lost.

Man showing some papers to his female coworker.

Retain all your receipts

It’s a very simple thing to do, but also just as easy to lose track of. You should make sure you get receipts for every single business transaction you make, whether you’re leasing a company car or buying a packet of paperclips. If HMRC decides to investigate your finances, and your claims for allowable business expenses, they will expect to see that everything is accounted for.

Make sure that you keep your receipts in a safe place, and file them in chronological order if you can. Additionally, if your company is registered for VAT, you should ensure that the receipts that you get, account for VAT: if they don’t, then you should request a separate VAT receipt.

Invoice as soon as you can

In the busy day-to-day world of running a small business, it’s easy for admin activities to get pushed back and take a back seat. But one that is absolutely essential for you to stay on top of is invoicing.

The longer it takes you to invoice for goods and services that you’ve provided, the longer it will take you to get the money from your customers and clients. Given that delays in payments are (unfortunately) a fact of life in many industries, waiting too long to invoice could cause you some major cashflow problems if left too long. A good practice for this – and many of the other admin duties in this guide – is to schedule an hour every Monday morning or Friday afternoon to devote all your attention to your paperwork.

Take advantage of HMRC learning resources

It’s easy to perceive HMRC as the enemy: after all, they’re taking a big chunk of your earnings away from you every year. However, HMRC does provide plenty of help so that people can get their tax and accounting administration right, and so that you can stay on top of any changes in legislation.

Take a look around HMRC’s websites for some of their free online tutorials, which can give you key information in formats that are easy for anyone to understand. From setting up a limited company to filing your accounts online, they can take away much of the uncertainty from business processes that can otherwise be quite intimidating for beginners.

Plan ahead for your tax payments and filing deadlines

At different times of the year, you’ll be required to make different payments to HMRC, and to file certain pieces of information, like your published accounts to Companies House.

For example, if you are ‘on account’ with HMRC for your own income tax, then you will normally have to make two payments each year. These are due at the end of January and the end of July respectively. The date on which you have to pay your corporation tax is normally nine months after your financial year-end: for example, if your year-end is at the end of February, then your corporation tax will be due at the end of November. And then there’s VAT to consider: this is generally paid quarterly.

Many of these payments can run into the thousands, and so they can have a big impact on your cashflow. Plan ahead as far as you can, so that you’re aware of what’s coming up and can control your finances accordingly. Ensure your credit and debt is manageable.

Plan out major expenditure in advance

Similar to the previous point, any big purchases or investments you have to make can also have a substantial impact on your cashflow. If made at the wrong time – especially if you have tax remittances to make during the same period – you could be putting unnecessary pressure on your finances. This can make running a business very stressful, and can quickly compromise your success, so try and even out your major spending across the year as much as you can.

Keep a close eye on your credit and debt

Most businesses rely on borrowing money at some time or another, especially in the early stages when trying to cover initial start-up costs. And just as you need to manage expenditure and tax as part of your cashflow, debt and credit management is just as important. You should be constantly aware of how much you owe, and how much you need to pay back and when. Additionally, you should also keep track of the limits of your credit facilities, so you know how much headroom you have to borrow more, should the need arise.

Business owner on tablet

Use bookkeeping apps if you need help

Much of what’s listed above can be difficult to keep track of, especially if you’re running a business with lots of incomings and outgoings every single day. This is where bookkeeping apps and online platforms can come in so helpful, by coordinating all your finances into one place where you can easily monitor everything. It can also be an indispensable tool when trying to collate all your records and information for tax and accounting filings.

Consider a professional accountant

If you feel that you need specific help, or just don’t have the time or skills to use online bookkeeping tools, then the services of a professional accountant can be a real help. They can not only take care of your accounts and much of your admin, but they can also give you advice and expertise whenever you feel you need it. Like the bookkeeping tools, you will have to pay monthly for their services, but the ability to save time and find legal tax efficiencies means you could make big savings in the long run.

Get small business insurance with Protectivity

Even with these small business accounting tips, it can still be complicated and time-consuming to keep on top of all your administrative duties. But it’s important to get them all right, as the penalties for any mistakes – even if they were accidental – can be severe.

Accounting is just one of the areas where you should take all reasonable steps to protect your interests, and another is taking out the best possible insurance cover for your business. When the unforeseen occurs, including events that are beyond your control, you can be sure that you won’t end up thousands of pounds out of pocket.

Protectivity’s small business insurance can cover you for accidents and injuries that prevent you from working; any accident or injury claims made by employees or customers; and any theft or damage to your property and assets.

We cover a wide range of different enterprises, whether you need Caterers Insurance, Builders Insurance, Painters & Decorators insurance and Crafters Insurance.