Why is it important for a business to keep good records? There are many reasons to do this but here are the top three reasons I believe it is important:
- HMRC Tax Inspections
- easier to find information
- less stressful at tax return time
When a new client approaches me and asks how I can help them with their bookkeeping and financial record keeping, I always ask them whether they have separate bank accounts, PayPal accounts, etc for their business. It makes it so much easier to know exactly what funds your business has if the bank account is separate to their personal accounts. It will also cut down on the queries that I may have, as I won’t continually be asking whether something is for personal or business use. If you do use your business account to buy something personal, please make a note of it, as again this cuts down on any queries. It is also a very good idea to file all of the bank statements in a binder, with a section for each different account.
Another top tip is to keep all of your receipts and invoices in a folder for each month. Separating them out by month, before you give them to your bookkeeper or accountant, means they will need to do less work as they won’t need to sort out the receipts. Here are a few time-saving tips for dealing with receipts and invoices:
- If you have paid for something personally, write it on the top of the receipt – it’s a 5-second job and can save valuable time later on.
- If you have bought a mixture of business and personal items at the same time, highlight either one and make a note on the receipt as to what the highlighted ones are.
- Keep purchase invoices and sales invoices separate, and separate them out by paid and unpaid
The final tip, and I think this is probably the most important, is to get your processes set up and in place straight away. If you get into the habit of sorting out your accounts on a monthly basis, or even weekly, it will save a lot of frustration when it comes time to file your return. It will also save you money if you are using a bookkeeper or an accountant, as they will be working on your accounts throughout the year, instead of in one big chunk.
All of the above tips will help your business to run smoother, and help you be less stressed. They will make it easier for HMRC to find information if they do a tax inspection as everything will be in one place. Being able to find information quickly is very important when it comes to finances because the information can tell you so many things:
- do you need to register for VAT
- do you have the money to grow your business
- who you owe money to
- who owes you money
- and many more
The financial information all being organised and in one place can also help to prepare your accounts ready for filing your tax return. If the records are all over the place and disorganised, it can cause you to use up valuable time, and money, in making sure everything is entered into the accounts.