Bookkeeping is the activity of keeping records of a business’ financial transactions. It is also one of the least favourite jobs of a business owner to manage. But by following these 10 basic bookkeeping shortcuts, you can make sure that the bookkeeping for your business is less painful.
1. Use computerised accounting and bookkeeping software
Xero, Quickbooks – there are plenty of others. These accounting software tools will make life so much easier. It will enable you to share your information in real time with those helping you in your business (Virtual Assistants, bookkeepers, accountants to name a few). You can link up your business bank account to pull through your transactions (most will import transactions once a day, some of the newer banks load them in real time). You will also have everything in one place – you can process payroll, VAT, manage inventory and assets.
2. Do it a little and often
The key to keeping bookkeeping as pain-free as possible is to do it regularly. We recommend to our clients do it a minimum of once per week. If you have a lot of transactions, it may be worth doing it more regularly (I do my own bookkeeping daily!). It can help to schedule time into your diary to work on your business bookkeeping so that you don’t get distracted by more appealing tasks.
3. Automate and streamline
Use integrated apps where possible to streamline your workflows. You can hook up your CRM system, ecommerce shop, POS systems, time tracking apps, and a whole host of other apps to get information from other systems into your bookkeeping software. This can help automate your processes. For example, if you are selling on Shopify, you might want to link it up to A2X which will then create an invoice in Xero which matches up to the payout.
4. Process receipts immediately
We recommend using a receipt processing tool such as Receipt Bank, Hubdoc, AutoEntry etc to do this for several reasons. Firstly, it creates a secure digital copy of your receipt so that you can throw yours away (or delete the email). It helps you log them straight away and will avoid lost receipts. Because you are logging them immediately, your data in your bookkeeping software will also be up to date and give you a real-time snapshot of how your business is performing. It also saves time and reduces errors – the software will extract all the data for you, thus reducing human error, and saving you having to manually type the information in.
5. Automate invoicing where possible
If you bill the same amounts every month, or even just bill the same customer every month, set up a recurring invoice. You can either set it up to go out automatically, or perhaps create a draft which can then be amended. This will save you time and ensure that no sales invoices are missed.
6. Keep it clean
Keep business and personal transactions separate. Ensure you have one account for business transactions which is not used for personal transactions, and that you do not use your personal account for business expenses. Sometimes there are unavoidable situations, but they would likely be few and far between, so start a good habit and stick to it.
Do not use cash – cash is tricky to manage and keep track of and unless you are a business that accepts cash payments, there really isn’t a need in today’s increasingly cashless world.
7. Keep it simple
It can be tempting to create a category for everything but keeping your Chart of Accounts (a list of your categories) simple makes for easier and tidier bookkeeping. If there is not a category for something, try to find the best fit. Quickbooks and Xero both come with default categories – see how you get on with them and you can add or remove as necessary after using it for a while. If you want to report on different sales streams, it would be better looking at using Xero’s Tracking categories, or Quickbooks’ classes and categories to help provide more insightful data. These can be extremely powerful and enable you to keep your Charts of Accounts more streamlined.
8. Use your reports
Know how to run your Profit and Loss reports, Balance Sheet and Cash Flow statements and how to interpret the key data from them. (We ran a webinar recently on ‘Know Your Numbers‘ which might be of help with this). These reports will not only help you know how your business is performing, but also highlight anomalies in your bookkeeping.
9. Categorise consistently
It can sometimes be tempting to dump everything into ‘general expenses’ , ‘miscellaneous’, ‘sundry expenses’ or whatever category your software provides you with. This is dangerous for a number of reasons – not only will it mean your reports are fairly meaningless due to not having expenses broken out into relevant categories, but it is also the first place HMRC look for dodgy items when you have an investigation.
10. Pay yourself
And finally, decide how much you need personally and make one payment per month to yourself. This will reduce the number of transactions you have to make and enables you to budget and forecast more efficiently. At the same time as you pay yourself, you may also wish to put aside some money into a savings account for your tax liability. This will be a different percentage depending on your business, but if you’ve managed your bookkeeping correctly, the Net Profit figure on your profit and loss is usually a good estimate. If you’re self-employed, don’t forget to factor in your National Insurance, and any other income you receive. And for all business entities, you may also need to put aside some money for VAT.
There is a wealth of information out there on how to do your bookkeeping well – including AAT’s recently launched short online course: The basics of bookkeeping.
Pick a software provider of your choice and do some of their training. And if you get to a point where you would prefer to focus on your business and leave the bookkeeping to someone else, make sure you hire a qualified bookkeeper to manage the workload for you.