So you’ve made the leap, struck out on your own and started up a business…
Whilst it can be easy to get carried away with the tantalising possibilities (
lording it up over your employees/buying your 4th home in the Bahamas), the boring stuff comes first. That means you’ll need to meet a set of legal responsibilities around recording and reporting your activities, and paying the right tax.
Of course, a top-notch accounting system isn’t just about meeting legal obligations. It can also be vital to your business’ success, allowing you to measure progress and make well-informed decisions as you go.
A lot to think about, right? Never fear: our accounting advice guide for startups covers all the info you need to get your business off and running.
Know your requirements
Albert Einstein once said that ”bureaucracy is the death of any achievement”. Evidently, he was entirely unfamiliar with HMRC’s various legal requirements and reporting deadlines for businesses. Ignoring legal obligations is the fastest way to ensure your business goes up in smoke, so you need to keep track of all the key dates and tasks that’ll impact your operation.
These will be different depending on the kind of business you run, but we’ve listed a few below that are commonly applicable:
- Self-assessment payments
- Company annual accounts and tax returns (if your business is a limited company)
- The VAT-registration threshold and VAT reporting deadlines
- PAYE and payroll reporting requirements
- Any sector-specific tax and reporting requirements (e.g the Construction Industry Scheme if you work in construction).
Get your bookkeeping in place early
Given HMRC’s lengthy list of requirements, you’re gonna have TONS of records to look after.
Far and away the best method of organising them all is by implementing an effective bookkeeping system. Though libraries have sworn by the Dewey Decimal system for years, we feel that cloud accounting software is the most suitable option for business owners.
Accounting software such as Xero, paired with add-on apps like ReceiptBank, will allow you to completely digitise your bookkeeping and accounting systems. Once set up, they’re sure to save you oodles of time.
Choose an accounting method
You’re not really spoilt for choice here, as there’s only two options to pick from: the accrual method and the cash method.
With accrual accounting, your income and expenses are recorded by the date of the invoice or bill. Your accounts reflect future revenue that has been billed but not paid, and debts that you’ve been charged but have not paid.
Under the cash basis, you only record income or expenses when you receive cash or pay a bill. Because it’s pretty simple to understand, it tends to be the option of choice for new business owners. Unfortunately,
if when you reach the big leagues and start hitting £150,000 income, you MUST switch to accrual accounting.
Understand the three main financial statements
The Miami Heat had LeBron James, Dwayne Wade and Chris Bosh. The BBC had Fawlty Towers, The Office and Gordon Ramsay’s Bank Balance. In the accounting world, we have our own Big Three:
- A balance sheet showing your assets, liabilities and equity.
- An income statement (also known as profit & loss), which shows your income minus expenditure.
- A cash flow statement summarising the money that’s coming in and out of your business.
As a limited company, you’ll NEED to file a balance sheet and income statement to HMRC at your financial year-end. Sole traders aren’t obligated to file any of the financial statements in the list above, though it’s best practice to produce them anyway (they’ll help with financial analysis + creating an audit trail).
Though you can create these statements yourself, it can get a little overwhelming if you’re a very new business owner. As such, we’d recommend getting the support of an expert *cough cough* rather than dealing with them yourself.
Not only will this save you a lot of time, but you’ll also be able to benefit from the improved financial insights that a trained accountant can offer.
Got any questions? We wanna hear ’em! Schedule in a consultation call with one of our advisors today!