Doing the Books
Standfirst: One of the most important aspects of running a business is also one of the most difficult – doing the books.
As an entrepreneur you have a vision, you have passion and you have an eye for a business opportunity, but one thing which could let you down is the admin – particularly doing the books. You want to stay on the right side of the taxman and ensure your finances are in order, so this is something you need to get right.
Mistakes are easy to make, especially if you’re not used to doing the books, but they can be lethal. Many of those enterprises which fail will do so because they have made an error with their accounts.
At best, misleading financial information can make it difficult to make good business decisions. At worst, you might think you have money in the bank when you do not.
How to do the books
The first challenge is to work out how you will do the books. You have all sorts of options.
- Excel: It’s not the flashiest way to do the accounts, but it can be simple and effective. Most small businesses probably start out doing the books on simple spreadsheets. Backed up with an effective filing system it can be cheap and effective, but be warned, Excel can create all sorts of problems.
Excel has been termed the most dangerous piece of software in the world. A simple error in one cell can multiply and leave a gaping hole in your finances. Just ask JP Morgan who lost billions because of a simple Excel error.
- Use HMRC’s Free Tools: HMRC works hard to help start-ups through those early stages and they offer some free pieces of software aimed at businesses with fewer than ten employees. These help you perform basic payroll tasks and they also run a number of workshops to help you fulfil your obligations.
- Use an accountant: Hiring a professional can seem expensive, but they may well repay you hand over fist. They can avoid accounting errors which can leave you falling foul of HMRC and open you up to costly penalties. By doing your tax returns an accountant may also be able to reduce your taxation obligations which can be crucial when it comes to paying your annual tax bill.
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The market is flooded with accounting software tools which can help you keep your books in order and manage a variety of administrative tools. Here are some of the most popular.
- Xero: Allows you to create purchase orders and bills, reconciles bank transaction, quickly imports data from Excel, delivering payroll for one employee and delivering smart, real-time reports.
- CheqBook: Allows you to print reports and statements, import transcriptions in bulk, provides daily backup off site and fast bank reconciliation. It offers plenty of support services including ongoing training.
- Zoho: Features include purchasing, invoicing and sales, recurring transactions, multicurrency, expenses, inventory and time tracking.
- Sage One: Allows you to create invoices, VAT returns and connect to your bank with automatic feeds.
- Hashoo: Real-time team and accountant collaboration, project based accounting, easy invoicing and expense management.
- FreshBooks: It has automatic overdue fees, expenses tracking and reports, team expense reporting and timesheets.
When choosing a provider, you need to understand the features they offer and which one will work best for your requirements. When your business is in its early stages, you won’t want to spend too much, but at the same time, you don’t want to cut corners and risk costly accounting errors. It’s about getting the right amount of functionality – not too much and not too little.
Grow your accounting
As your business grows your accounts should too. In those early days when it’s just you and a few colleagues doing the books, a spreadsheet should be enough.
All being well, though, your business should grow and prosper. It should become larger and more successful with more departments.
You’ll have more issues to keep track of, more people to pay and your accounts will become more complicated.
It will be more than one man with an Excel sheet can handle, so you’ll need to use more sophisticated technology and hire more experts.
Think about where you want your business to go and what you want to look like. Map out the stages you’ll have to go through in order to get there and make sure your business has everything in place to meet those goals at every stage. A good accountancy system should be one you don’t notice. It’s only when things go wrong that it will make its presence felt.