Understanding how a business’ finances work is a whole new kettle of fish to what you’re probably used to. Saving for a mortgage or understanding investments is one thing, but bookkeeping is quite another. There isn’t just your money on the line, and that can feel overwhelming.
If you’re in between hiring an accountant, or even if you aren’t, it would be greatly beneficial to understand what goes in and out of managing a business’ finances. Take a look at our guide to see what you need to know about handling your business’ money.
Revenue and expenses
You should be keeping a detailed record of your revenue and expenses. Everything going and going out and how much should all be recorded. As much as this may sound like “Did you know 2 + 2 = 4?”, you’d be surprised how many things slip through the cracks.
The most efficient way to record every transaction is to follow The Accounting Cycle. It is a handy reminder of the steps that need to be followed to keep track of everything. The steps to the accounting cycle start with organizing transactions, recording journal entries, posting journal entries to the general ledger, running an adjusted trial balance, make adjusting entries, preparing an adjusted trial balance, running financial statements, closing the book for a month, and beginning the cycle over.
You will be able to determine your annual expenses when you regularly keep a record of the cash your business is spending throughout the year. You can also write reimbursable checks and keep detailed petty cash records as valid methods of recording your cash expenditures.
Prepare for tax
Remember your tax is your highest monetary priority. If you’re spending money that should be going to taxes, you’re spending money that isn’t yours.
Make sure that your books are in order so that you can present accurate tax predictions. If you keep everything in order from the beginning, it will save you from panicking at the last minute, because if you don’t meet your tax deadlines you can gain a penalty.
If you run a limited company, make sure to only declare dividends from retained profits, as in, the money left in your company after all its liabilities: including tax. If you don’t, you could face penalties from HMRC.
Remember to include things like car mileage and petty cash and you can claim allowances you’re entitled to, including the costs of working from home.
If you are looking for tax accounting and advice you can consult a company like Azets for expert advice.
Remember that hiring staff comes with its own set of responsibilities. Responsibilities to your business, to the employee and to your taxes. Hiring even one employee will mean a lot of filing and pay forms and payroll taxes.
You might be expecting only the national UK average salary to come out of your accounts, £27,600, but the true cost for the first year of employment of a new hire can reach around £62,890 when factoring in the cut for a recruitment agency, your employee’s National Insurance, their pension contributions, training, office space, holiday pay and equipment, employee happiness and bonuses, plus additional costs like sick pay and company vehicles. Some of these are optional depending on the role and establishment, but things like National Insurance, pension, sick pay, and holiday cover definitely are not.
If you are handling your own business’ finances, consult an expert, especially in the beginning, to keep you on track. A small problem can turn into a big one fast, and there are rigid rules that cannot be crossed, but easily are.