So now you’re up and running what records do you need to keep?
Well there are two objectives that you’re looking to achieve with your record keeping.
HMRC have requirements when it comes to record keeping and they are the first stakeholders in your business that you need to consider. The official position is that a business should at the very least maintain a balanced cash book and that it should be updated daily and reconciled regularly. A cash book is simply a record of the bank account transactions for a business. If this is prepared accurately then if you were to add up the ins and outs of the cash book they should agree to the balance on the bank statement.
Now this is the official position and over the years HMRC have tried to bring in rules to make sure that businesses prepare their records to a certain standard. The latest attempt talked about reviewing businesses records and raising penalties where they thought they were not up to their standard. Even if the business paid the correct amount of tax [because their accountant put everything right when they prepared the year end account – more of this later]. In the end though this initiative was dropped and whilst HMRC have certain expected standards we have never seen anyone punished for poor book keeping.
That’s not the end of the story though. HMRC are looking to save lots of money by making the whole process of paying tax much more efficient. They think that they can achieve this by using technology and their ambition is that all businesses use software to record their transactions and that this software will then communicate with HMRC’s systems and submit the tax information electronically.
This is already done for PAYE and VAT and the goal is that a business will submit its profits and therefore its tax calculations electronically.
The main problem with this is that in almost all owner managed businesses the accountant takes the raw books and records of a business and carries out a certain amount of work making sure they are fit to be filed with HMRC. This work normally consists of some of the following
- Making sure that the cash book balances
- Checking that everything adds up
- Ensuring that the business only makes tax claims for things that it is allowed to
- Making sure that the business has claimed everything its entitled to
Even the most well run businesses rely on the accountant to calculate the tax payable.
Gone are the days where the accountant prepared your accounts and then sent you a bill for however long it took. Normally Seagrave French in common with other accountants agree fees in advance. Generally though your accountancy fees are based on the quality of your record keeping.
So the better your record keeping the lower your accountancy fees. Most businesses make a value decision on this. Are you better spending time earning money for your business [which you are presumably an expert in] or doing your book keeping? Generally if they are not of a size to afford a book keeper on in house accountant then they do what they can to the best of their ability and at the year end the accountants correct any mistakes and do the necessary returns.
So what are the main things that a business can do to make the accountant’s job easier and therefore at a lower cost? Here are a few tips:
- Reconcile the bank account
- If you record your bank transactions agree the closing balance for a period [monthly] to the bank statements. This saves a lot of time, with out this the accountant has to check every transaction to the bank statement just to identify the few errors.
- Identify expenditure
- The second biggest job that an accountant has to do is identify what you’ve spent money on. If you use a spreadsheet then analysing expenditure into columns of similar items is a great help.
- Note how expenditure is paid
- Another difficulty is working out how an expense was paid, is it cash, from the bank, by credit card or personally.
- Reduce the number of transactions
- If everything the business pays for is recorded as a separate transaction on the bank statement then this is obviously going to take longer for the accountant. If you can pay for the small items personally or with a personal credit card and then make an expenses claim once a month and summarise the expenditure, the only requires one payment out of the business account.
- Keep your personal expenditure separate
- Make sure you have a business bank account and don’t make personal expenditure out of it. Pay yourself a regular wage and then spend this how you wish – just don’t mix up the two
Options for record keeping
There are many ways to keep your records here are a few of our recommended ways
For the new business this is normally where they start and they can be pretty good and help you record everything in a format that makes it easier for your accountant to prepare your accounts.
See the link Example Cashbook Spreadsheet to our example of a spreadsheet that we’ve set up for you. This is only for businesses that don’t need to keep a track of who owes them and what they owe. It basically records transactions as they are paid. But for smaller businesses and start up it will do the job really well . Remember the tips above and the related instruction sheet.
Online Accounts Packages
There are now quite a number of options for these types of systems, the main ones being Sage One, Kashflow, or Xero. We support all of the major players and there can be real benefits to their use. Our systems are able to link with the online systems and automatically download the transactions so that the year end work is reduced – and consequently, your accountancy bill.
They are also able to cope with debtors and creditors – where you buy and sell on credit. You are also able generate sales invoices on these systems and then email them to your customers.
To maximise the benefit of these systems they need to be operated accurately. If you get into a mess with these then they can take longer for the accountant to correct than the humble spreadsheet solution. We would only recommend these if the clients is committed to keeping their own books regularly an accurately. We can review and fix problems as they arise remotely but if you’re not confident we recommend the spreadsheet option.
If you’re interested in these solutions or want to give them a try we can arrange a free trail period for our clients to see if they work for them.
Desktop Accounts Packages
These are only really for the client who can afford to employ a book keeper in house to carry out the work. Whilst as accountants we understand these inside out they do tend to be more complex than the online versions.
The benefits of these solutions is that they have additional functionality. With these you can manage stock and sales and purchase order processing. You can manage projects and keep track of costings.
But the main functions are more involved and are better left to an expert.
They do now also have some of the functionality of their online counterparts in that the data can be shared with your accountant and corrections made. Many of our clients use the software in house and then we help them prepare management information by remotely connecting and obtaining the information to produce meaningful management accounts.
We can help clients looking for this type of solution plan and install the necessary software and as a reseller we can obtain the software for our clients.
We offer a free initial no obligation meeting to prospective clients where we can advise on the best choice for your record keeping. Just contact the author below.