Small Business Bookkeeping: How To Get Started

As a small business owner, one of your most important tasks will be to keep track of your finances.

In some cases, you may be legally required to do so, but it is also a fantastic way to work out where you can cut costs and increase profits.

Many businesses prefer to concentrate on making sales and opt to outsource their bookkeeping to a specialist, which can be a cost- and time-effective investment.

However, if you’re intent on taking the DIY approach, then you will need to know where to begin.

Understanding the essentials

Firstly, you need to understand exactly what bookkeeping is and build from there.

Bookkeeping is the process of recording all financial transactions, including sales, purchases, receipts and payments.

It is essential that you accurately record your finances as you may need to submit your tax return to HMRC on a yearly basis. Furthermore, if HMRC need to check your tax return for any reason and you cannot produce the records that you used to complete the return, you may face a penalty.

In addition, if you don’t pay HMRC the correct amounts due in tax, you may also be charged penalties, or even interest on the amount you owe.

Finally, accurately recording your financial transactions will also allow you to see if a venture is profitable or not and if you have a healthy cash flow to be able to pay your staff, bills, and taxes on time.

h1 style=”text-align: left;” align=”JUSTIFY”>Recording your transactions

Before recording anything, you will need to decide which method of documenting your transactions works best for you.

There are three main options to choose from: manual, by spreadsheet or through accounting software.

Manual bookkeeping is a paper-based form of accounting, in which you record your income and expenses by hand. Specially-designed books for this purpose are available to buy online and on the high street.

If you find it difficult to use computers, this method could work well for you. However, the chance of human error occurring is higher and it can be time-consuming – not ideal for a small business owner.

Your second option is to record your transactions on a spreadsheet such as Microsoft Excel. This is a much quicker method than manual bookkeeping and it’s easy to create basic calculations to track your finances.

Your final option is to use accounting software. Doing so can make it much easier to manage your finances and there are many designed specifically for small businesses.

Accounting software — including mobile phone apps — can be connected to a business bank account and a payroll system, which means you can automatically track and match incomings and outgoings. Many pieces of software can also generate automatic reports for business owners if needed.

Cloud-based accountancy software packages, such as Xero, Quickbooks, FreeAgent, or Clearbooks, have the benefit of being accessible wherever you are, allowing you to track your finances on the go.

Plenty of software providers will also give you a free trial, so test out a number to see which one will suit your business best.

Or why not speak to your accountant and see which one they would recommend? It could save you plenty of time and energy, particularly as HMRC are looking to make the submission of tax returns, fully digital.


What data to record

Now you know which method of documenting your transactions works best for you, you will need to know exactly what to record.

You will typically need to keep three sets of financial records: the sales ledger, the purchase ledger and the cash book.

The sales ledger is a record of all your sales, both paid and unpaid. Make sure to keep track of all your unpaid sales invoices by keeping them separately.

The purchase ledger is a chronological record of all the purchases you have made as a business, paid or unpaid. Each purchase should be allocated to a specific category, for example motoring, lighting and heating etc. You should make notes on how they were paid, for example by cash, through a bank transfer or by credit card.

For sales and purchase invoices/receipts, you should record:

  • Date of the invoice/receipt

  • Name of the supplier/customer

  • What the invoice/receipt was for

  • Amount paid – if you are VAT-registered, also record the VAT paid and charged too.

The cash book is a record of all your actual income received and payments made. This is not just cash — as the name suggests — but can also include payments and receipts through other methods such as bank accounts and credit cards.

Keeping on top of your bookkeeping

Now the majority of your preparation is done, you are ready to start making your entries.

It is absolutely essential to stay on top of your bookkeeping, because playing catch up can be time consuming and lead to mistakes.

Some top tips include:

  • Introducing your bookkeeping system as early on as possible. As your business flourishes, you will find it more and more difficult to go back and catch up.

  • Regularly asking for and storing all receipts and invoices. If you can do this on a daily basis then you will save yourself a lot of hassle in the future.

  • Issuing invoices and statements to clients on a monthly basis. Not only will this look more professional to the client, but it will also help you to keep up with your transactions.

Hasib Howlader is the director of Howlader & Co, as well as a chartered accountant, chartered tax adviser and licensed insolvency practitioner.

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  1. Bookkeeping sounds easy but definitely not an easy task to do. It could get more complex as the business grows. It could also get overwhelming down the process especially if there’s a lot of things to keep track. That’s why there are professionals out there who are willing to do the job for you. It’s much better to leave the job to the professionals than to force yourself and get everything in a mess at the end. Anyways, great points.

    • Exactly! For SME’s owner, bookkeeping is time-consuming to do for them and make cause more backlogs. They became busy for bookkeeping instead of focusing on business growth. Hiring bookkeeper is the best way to make more efficient and accurate the bookkeeping records.

  2. Bookkeeping is vital to any business. Letting it slide is how to get in deep trouble with the tax agencies. There are a lot of great resources listed in this informative article. I recommend if you are going to do your own bookkeeping, that you set aside time daily to keep on top of it all. Setting notifications in your calendar for deadlines also helps.

  3. Great article. There are plenty of accounting softwares that simplify bookkeeping. The tricky part is receivables management. Having follow-ups with your clients is crucial to collecting on open invoices.

  4. Bookkeeping is an essential part of a business. The final accounts are produced using the bookkeeping records. They are prepared in a specific format to meet the rules and regulations. Saving time is something we all want. Productivity is the true essence of a successful business. You have elaborated it so well. This post is so far good and will help a lot of people. Thanks for sharing.

  5. Bookkeeping is really necessary to track your business, how far your business gone through. Professionals are available if you know nothing about bookkeeping,but there is a short course offered if you want to DIY your bookkeeping in your business.

  6. Texting is an extremely effective communication & marketing channel for tax preparation services. 98% of text messages are read within 3 minutes of receipt! That’s significant when you consider that 90% of emails are considered SPAM so email marketing for tax professionals just isn’t as effective anymore. Whether you are marketing an accounting firm or just marketing tax services.
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  7. A super good piece of information! Consult with your tax professional maybe even at first… You don’t necessarily need to outsource your bookkeeping, but a good accountant will at least set you up on the right path!

  8. Tax planning software is an unquestionable requirement for small businesses. Using comparable tax software will make planning and filing your taxes online a lot easier. If you do not have the correct information about your expenses, you will be liable to pay more in taxes.

  9. Great Blog! highlighting that how bookkeeping is important for small business owners. I recently came across a company named Times Square Tech located in Brooklyn,NY that is very known for their bookkeeping services not only this they majorly provide IT Services.

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