Emily Coltman, chief accountant at FreeAgent – which provides a cloud accounting software for freelancers, contractors and micro-businesses – gives her top tips for improving your bookkeeping and providing your business a boost in 2016.
The New Year is almost here, which means it’s the time when many small business owners start thinking about making resolutions to help them strengthen their business for the year ahead.
One of the most beneficial changes to consider making is improving your small business bookkeeping, to give you greater clarity about your finances. And the good news is that, rather than being a huge, daunting prospect, the process of keeping better books can actually be easy and manageable.
Pick a regular time each week for bookkeeping
One of the biggest problems that small business owners have when it comes to bookkeeping is that they don’t do it regularly enough. They leave their books alone for months on end and then are faced with the monumental task of organising huge amounts of data before they can find any useful information about how their business is performing.
Don’t do this. Dedicate a regular amount of – for example, an hour a week – to concentrate on your books and complete your admin. Remember to also try and use the same block of time (whenever possible) for your bookkeeping each week, so it becomes an important, established habit for your working life – rather than an unwelcome hindrance.
Make a checklist of important tasks to complete each week
Now that you’ve ring-fenced a regular slot of time for bookkeeping, what should you do with it? The best strategy is to draw up a list of all the important tasks that you usually do when managing your finances and then create a routine based around these.
This would usually include:
Send invoices for any work you’ve just completed and chase up any outstanding payments from your clients. This is vital for keeping your cash flow healthy and teaching your customers to pay promptly.
(2) Reconciling bank transactions
It’s important to regularly explain and reconcile data from your bank in your accounts, otherwise struggle when you finally see your accountant and have to try and remember what each transaction was for when they review your accounts.
Some online accounting systems enable you to import bank data directly into your accounts, so if you’re using one of these, use some of your hour to log in and explain all of your latest transactions. It could save you a lot of time in the long run, as you don’t have to key in all of your transactions manually.
(3) Managing your bills
Stay on top of your cash flow by setting time aside to go into your online banking site and pay any bills that are due to be paid.
(4) Check your project profitability
Tie costs back to any projects that you’re running to make sure that you have a true view of how much profit you’re making on each project. Once you have the full picture, you can make even smarter decisions about where to spend your time – and decide whether you need to revisit your pricing if you aren’t making enough profit.
(5) Check how much tax you owe
Keep an up-to-date total of how much tax you currently owe, and make sure that you can see this information at a glance. If it helps, you could also set up a separate bank account just for your tax and keep this updated every time you do your bookkeeping too.
Don’t forget the small stuff
Don’t feel you have to always wait until it’s “bookkeeping time” in order to do your financial tasks. Your hour a week should be for high-level admin, but there are plenty of smaller things to do in the meantime – for example:
(1) Tracking time, even if it’s not billable
As soon as you finish a task, just take a minute to record it, so you won’t have to play catch up or try to enter your time from memory when you’re putting together a timesheet to show a client.
Remember to also track your un-billable time as well as your billable work, as this will give you a full picture of your profitability, and help you make good decisions about where to spend your time.
(2) Record expenses as you go
HMRC will accept scanned receipts as proof of an expense (provided you take a picture of both sides if there’s any information on the back). So use your smartphone to take a photo of your expense receipts as soon as you have them, which will reduce the chance of paperwork building up/getting lost.
Many online accounting systems are mobile-friendly and integrate with apps that enable you to take a quick snap of your receipt on your smartphone and upload it to your accounts – removing the need to keep your receipts.
Learn something new about your business
Once your bookkeeping admin is completed, you can start discovering some deeper insights about your business accounts. For example, you could take a look at your profit and loss account for the last few months and see whether your income dropped at a certain point in the year – and, if so, whether you could smooth this out by broadening your product range, or by invoicing your customers monthly instead of annually.
Bookkeeping isn’t the most glamorous of tasks when it comes to running a small business, but it’s certainly one of the most important. By resolving not to neglect yours, you could give your business the perfect boost for the year ahead.
Emily Coltman is chief accountant to FreeAgent.
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