Getting things right from the off

Isobel Chaplin •

April 19, 2021

How to keep on top of your numbers from the word go...

So, you’re new to running your business.

Or perhaps you’ve been doing it a while and you’re not happy with the way you’ve been dealing with (or perhaps, not dealing with, as the case may be) the business’ finances.

I think it’s important to start off any business ventures well organised and having thought through how you’re going to keep track of everything you’re doing in a monetary sense. It sounds obvious, I know, but so many business owners are perhaps a little afraid to face the finances as it all seems a bit daunting. By making sure you have set yourself a few rules to get going, it doesn’t have to be too complicated or time consuming.

Step 1

Make sure you have a separate business bank account set up for all your business transactions. For limited companies it’s a mandatory requirement, so it’s one of the first things you should do once you’ve got your business registered with Companies House. Some formation companies even tag on the bank account as part of the process. Although it’s not a deal-breaking requirement for sole traders, it’s something I’d strongly recommend. If thinking about your tax return is a daunting prospect, then having all your transactions on one place makes so much more sense. No more spending hours working through personal bank transactions and sifting out the business ones – and perhaps missing some or including the wrong ones. There are many challenger banks out there offering free bank accounts with no monthly fees, only fees on transactions. Examples are Tide, Starling, Mettle (the latter offering a free subscription to FreeAgent cloud accounting software, which I’ll cover next).

Step 2

Get yourself hooked up to one of the cloud accounting software packages that are available. These cater for both Sole Traders/Partnerships and Limited Companies and will be set up according to the business type you need. Our preference leans toward 2 packages, Xero and FreeAgent, which are suitable for a wide range of businesses and one or other will have features that fits your business style perfectly. But why bang on about software? Well, for a small investment (or free in certain circumstances) it will save you a lot of time in the long run and offer a real-time look and the incoming and outgoing cash for your business, of its kept up-to-date. You can run all sorts of reports and speed up and automate invoicing and expenses tracking, and there are many integrations with other apps and software such as webshops, payment providers, cash forecasting tools, CRM systems, stock management systems and more.

“But my business is too small, I don’t need it”. If you are a sole trader and therefore self-employed, there are changes afoot with regards to the submission of your profits to HMRC which will mean the inclusion of such a software in your everyday management of your business. By 2023 HMRC are looking to bring in MTD (Making Tax Digital) for self assessment, meaning individuals will need to report more regularly and digitally. Getting ahead of the game and using software now will mean the stress of setting yourself up further down the road is eliminated. And we’d all love less stress!

Step 3

Set aside a day a week/month for your bookkeeping and stick to it, don’t let it slip. Boring, perhaps, but essential to know where you are and how you’re doing, especially if you are VAT registered and need to prepare quarterly (or perhaps even monthly) returns. And if you don’t have time or the inclination, hire a bookkeeper to do it for you. And keep your files organised, whether they be paper or digital. The receipts-in-a-shoebox scenario is real, and if you were to be called on by HMRC for an inspection then you’d need to be able to produce your documentation and evidence quite quickly. The last thing you want to be doing is rummaging around in the bottom of a drawer at a time like that, or any time really. Getting the end of year accounts and tax return done will be so much more straightforward with clearly labelled files and documents ready for your accountant or bookkeeper.

Step 4

Make sure you register with HMRC as self employed, or if a director or a limited company to submit self assessment tax returns. You need to do this with HMRC by 5th October after the end of the tax year you started trading or taking dividends. It’s simple to do and you just need your personal details including NI number, and the name of your business if registering as self-employed. Here’s the link for registering as a sole trader.

Step 5

Make sure you understand what taxation regime your business falls under. This helps so that you can be prepared for approaching deadlines and also start putting aside funds for paying your tax bill when it’s due. Sole traders will need to prepare their accounts based on the 5th April tax year end (even if their accounting year is deemed to be different dates) and so well need to submit their income tax return (including NI) by 31st January of the following year, which includes any payment due. This is the same for directors who need to report dividends. Limited companies’ year ends vary and will normally fall just over a year after the date the business was incorporated. Limited companies are subject to corporation tax and the tax return is due to HMRC 9 months and 1 day after the year end, which is one day after the accounts are due to Companies House.

The most obvious thing to do if you’re fearful of the numbers is to get an accountant on board. They’ll know what you have to do and when, and will be able to explain the ins and outs and pros and cons as well as guide you through what the numbers stress trekking you to help you make better decisions whilst running your business. Just remember that getting started on the right foot will lead to more confidence in what you’re doing and also still help with those previously sleepless nights.